Should you save for retirement while getting out of debt?

To contribute or not to contribute?

That is the question when trying to pay off debt. This is a question we battled with when I started working again. The financial experts are all over the place with this question. Some folks are adamant that you should not contribute while you are trying to get out of debt. Others say you should. So what should you do? Let me take you through my thought process.

Most people think about time. How much time can I afford to not make retirement contributions? For me, it wasn’t so much about time, since I knew how long it would take to pay off our debt as long as we stayed intense. For me, it was about other benefits and our ability to keep traction on our plan.

Do you have time?

Can you pay your bills? 

You should never invest if you can’t pay your bills. It doesn’t make sense to borrow money to pay your monthly bills so you can put money into your retirement plan. Too often I see people do this, just to end up taking money out later to pay off debt. If you take money out of a retirement plan, you will pay a 10% penalty plus your tax rate. Now you are further in the hole than you were before!

Does your company match 100%?

If you work for a company that matches your contributions, you are missing out on part of your compensation package by not contributing to your retirement plan. When a company determines how much to pay you, the company factors in the maximum cost of benefits (health insurance, retirement, life insurance, etc). Any benefits you do not take advantage of are savings to the company. I hate leaving that money on the table.

I have been very fortunate to work in an industry with incredible retirement matches. Over the last few years, if I put in $1, the organization puts in $1.60 or $1.80, up to 5% of my pay. That’s some serious money to leave on the table. I’m making 160% to 180% on my money instantly.

Are you making good progress paying off your debt?

If you are having trouble getting traction on your debt payment plan, would stopping your retirement contributions help you make some traction?

If you are putting $100 a month in your retirement plan, you would probably have an additional $85-$90 per month after taxes to put toward your debt. That may be the extra boost you need to start getting some traction, especially if you have a lot of smaller debts.

Making the decision to stop your retirement contributions means you need to get a fire under your ass. Generate some extra income and slash your expenses so you can get some breathing room and get that debt paid down. This should not be a 10 year plan. This should be a 2-3 year plan, depending on how much debt you have. You need to get the mess cleaned up so you can start saving for your retirement and living your dreams. No cable. No vacations. If you are willing to sacrifice your future, you need to sacrifice right now.

We have slashed our expenses and both do side work to generate extra income. Each month, 50% – 60% of our take home pay goes to debt repayment. The contributions that I make to my retirement plan (after taxes) is 1% of our take home pay. By making that retirement contribution, I decrease our debt payoff by $116 per month. That also means that I have $455 per month going into my retirement plan (including the match). The $116 is not going to move our debt free date but the $455 will move up my retirement date.

Is there a correct answer for everyone?

That’s the easiest question of all because the answer is no. Everyone’s situation is different. You need to look at your situation and determine what is right for you. If you need help making this decision, leave a comment or send me an email at

Are you contributing to retirement while getting out of debt? Does your employer match your contributions? 


Are you making these budget mistakes?



1. Not making a budget

Do you ever feel like you don’t know where you money is going? A budget can help you do that. The first time you make a budget, it’ll take you about an hour. Now my budget takes me about 10 minutes. Most things don’t change month-to-month so there is very little that changes each month. Once you work out the kinks, creating a new budget is pretty quick. Is financial security worth an hour a month? You could do your budget while watching TV.

2. Making a budget but not living by it

When you make a budget and stick it in a drawer, you might as well not make one at all. You just wasted 10 minutes of your life. Managing your budget doesn’t have to take long. I spend about 15 minutes per week updating my check register and paying bills that are not set up automatically. I have a spreadsheet set up in Google spreadsheets that I use as my check register so I can access it from anywhere.

3. Not having a goal

It’s extremely difficult to stay on budget if you don’t have a goal. Set a goal. It could get getting out of debt, saving an emergency fund, saving for retirement, saving for a car or a vacation. Whatever your goal is, get it down on paper. Put it on your wall. Keep that goal in the front of your mind. It makes it so much easier to stick to a plan.

4. Not working with your spouse

When we got married, the official said, “And now you are one.” We went from “his” and “hers” to “ours”. We made decisions together. If you can’t share common dreams and goals, how can you develop a plan to get there? Don’t start with the budget. Start by discussing what you want your life to look like. Once you agree on that, it’s easier to develop a plan to get there, together.

5. Planning for tomorrow when you can’t survive today

I see this all too often and it frustrates the crap out of me: people who are saving for retirement or purchasing company stock but can’t pay their bills. The argument I always get is “well I’ll need money for retirement!” You bet your life you will because you are going to need it to pay off all that debt you are accumulating today! If you take a few years off from retirement saving to get your mess cleaned up, you’ll easily be able to put 15% of your income into retirement each year. You’ll free up cash flow and end up with more money in the end. Don’t cut off your nose to spite your face!

6. Creating a budget so tight you go insane

This is often the one that kills budgeting for most people. The reason that people think budgets are restrictive, terrible, horrible, no good, very bad things is because they make their budgets that way. How do I know that? Because my husband and I did that when we first started. Our budget was so tight, after a few months we completely fell off the deep end and bought anything we could get our hands on. I’m talking stupid with zeros on it. Budget yourself some BLOW money. Remember that you make this budget. You can put what you want in it. Don’t build it the way I think you should or the way someone else thinks you should. You need to build your budget the you can live with it. The first goal is to track your money.

7. Trying to do too much at once

I mentioned goals earlier. Some people have lots of goals. Saving for retirement while trying to get out of debt and save for a new car, while also trying to buy a house will get you nowhere. Pick a goal. Stick with that goal until you accomplish it, then pick the next goal. Rinse, repeat as needed.

8. Trying to create a one-size-fits-every-month budget

When we first started budgeting, we thought we could make one budget and then reuse it every month. That did not work. Things change. Life changes. Budgets should to. I start with the previous budget and update it for the current month. I add in the actual utilities for the month and add any items that might come up in that particular month, like the quarterly water bill or semiannual auto insurance payments. There are also things like weddings, showers and birthdays that might need to be added to the budget. Budgets are also flexible. If something happens during the month, sit down with your budget and adjust it. Decide where the extra money will come from. Remember, this is YOUR budget.

9. Believing that the only way to work your budget is to decrease spending.

Jeff and I have cut our budget a lot. We don’t have cable TV. We keep the heat down. If I cut the grocery budget anymore, Jeff’s going to start an anti-vegetarian protest. We realized that if we want to pay things off faster, we needed to increase our income. We both have side businesses that bring in extra money. Think about what you can do to make some extra cash. Walk dogs, mow lawns, shovel snow, do repairs for folks. Think about the skills you have and see how you can apply them to make extra cash.

10. Believing that it can’t be done

When I asked readers the first word or phrase that came to mind when they heard the word “budget”, many people responded with various forms of hopelessness. I remember that feeling. I remember thinking we could never get out of debt. I remember thinking we would be broke forever. I remember thinking that payments were normal and someday they would just go away, that credit cards were a way of life. I also remember how it felt when we built our thousand dollar emergency fund. It was like a 2-ton weight had been lifted. We made a lot less money then and that was a huge accomplishment. Then we paid off the first credit card. It wasn’t huge but that little win helped propel us to where we are today. Will it be easy? Probably not. But when the stress of payments is stronger than your desire for stuff, you can get there. We still have a long way to go in our debt-free journey and it’s not always easy, but we have so much more peace now. The financial stress is gone. We have a plan and we live by it.

What mistakes did I miss? Add your own in the comments.

Take control of your spending!

There appears to be a stigma about budgets. It has become a dirty word to many.

People tell me budgets are restrictive. They can’t do what they want if they have a budget. A budget is limiting. It is controlling. 

Who would make your budget? Your mom? The mailman? The guy next door?

YOU make your budget!

Since you make your budget, you can put whatever you want into it.

Yarn habit? Yup!

Action figure collection? Sure!

Want to go on vacation? You can budget for that too!

The only limitation on your budget is your income. Now for some people that might be a problem. For the vast majority of people I council, they make enough money to pay all their bills and there is money left over.

It’s time to take control of your spending!

Where did all my money go last month?

Have you ever asked yourself that question? Those of us on a budget never need to ask that question because we made a spending plan before the money went out the door and tracked our spending during the month to ensure we stayed within budget.

A budget

Can you budget for fun things? Absolutely, just make sure your budget aligns with your goals.

If you read the blog, you know our goal is to get out of debt. But that is really just part of a bigger goal. My husband would like to transition out of his full-time job at 55 and focus on his passion. In order to do this, we need to pay off our debt so we can ramp up our retirement savings. We have chosen to make this a priority so we made the decision to cut back on other things.

Do we still budget for some fun stuff? Of course, but that budget is very small compared to our total income. We each get $50 per month for blow money (some people call it mad money). We can spend this on whatever we want. We also budget $100 per month for entertainment. This two items combined represent about 2.5% of our total budget. Typically, we don’t even spend it all, but it gives us breathing room to have a bit of fun while we are on this journey to become debt free. It also doesn’t stop us from achieving our goal. Currently about 50% of our take home pay goes toward our debt snowball.

What are your goals? Does your spending reflect those goals? If not, a budget could help you get there.

You can read more about how to construct a budget here.

Just remember that a budget is just a spending plan. You design it. You control where your money goes.

When two become one

I went to a lovely wedding this weekend. During the ceremony, the priest discussed how in marriage two people come together to become one. This is a theme in most, if not all the weddings I have attended, including my own. It’s a beautiful thought really. The bride and groom, living separate lives, now join together and create one new life together.

In my years of counseling, I think a lot of people miss this message when it comes to finances. Most couples with financial problems (which quickly become marital problems) fall into one of two camps. Either they keep their financial lives completely separate or one person becomes the “financial guru” in the relationship. Generally, this person has the entire weight of both financial lives upon their shoulders but both partners still act as though they are living separate financial existences.

The hardest part of counseling people in either of these camps is convincing them that in order to end up at the same place at the end of their financial journey (usually retirement), they need to work together. There is no longer “her money” and “his debt” but “our money” and “our debt”. It’s impossible to have one spouse truly prosper financially when the other has debt of any kind. Whether or not you believe it, your financial lives will be forced to become one at some point. Hopefully that moment comes as prosperity at retirement, rather than bankruptcy later in life.

I’m a big believer in setting down goals. What kind of retirement do we want to have? How are we going to get there. When having children, will one of us stay home? Public school or private school? Do we see ourselves living here forever? Do either of us need more education to achieve our goals?

Jeff and I have these kinds of conversations all the time. It’s actually fun to sit down and ponder the future and try to figure out how we will get there together. We do our monthly budget together. We celebrate our financial successes together. We work out the setbacks together. We didn’t always do this. A few years ago, we were one of those couples where one person handled the finances. It was stressful. It caused disagreements. It caused strain between us. Once we got on the same plan and started working together, everything changed. The money stress is virtually gone. When there is money stress, we handle it together.

I’m not saying things are going to change overnight, but when you start to see your finances as one unit that you both must carry together, it will start to get better. Your marriage will become stronger and the stresses that come with money will be less.

For more information on this, I highly recommend The Total Money Makeover and Financial Peace Revisited. Both books cover how to talk to your spouse, how to have those budget meetings and how to put together a plan for the rest of your financial life.

Will you have enough for retirement?

Have you ever thought about this? Many of us are just blindly putting money into some type of retirement vehicle (401(k), SIMPLE, IRA, etc) but is this going to be enough?

There are a few things to consider when trying to figure out how much money you’ll need. First, try to figure out what percentage of your current income you think you’ll need for retirement. If you had no debt and no mortgage, now much of your income would you need to live off of? Don’t forget that you won’t be saving for retirement once you retire, so you can take that out as well. If we didn’t have any debt and weren’t saving for retirement, Jeff and I could live on about 50% of our current income.

Next, you’ll need to consider how long you might live. Go whip out your crystal ball… wait, you don’t have one of those? Aww, come on. No crystal ball? Really? Ok, ok. How about the next best thing? The Living to 100 Life Expectancy Calculator is not exactly a crystal ball, but I know a lot of financial planners and other professionals that use it as a gauge. The other nifty thing about this calculator is that it gives you suggestions how to improve your life expectancy. You’ll probably be amazed how long you’re going to live. According to the CDC, if you were born in 1980, your life expectancy is 74 years. If you make it to age 65, your life expectancy jumps to about 85. That’s a lot of retirement money.

I found a great retirement calculator at MassMutual’s website. It’s the first one on the list, “retirement planner”. This allows you to put in your current age, retirement age, how much you currently have saved and a bunch of other variables to see how the numbers work out. It will also give you suggestions to reach your goals. It’s a very nice tool. I would suggest that if you are under the age of 50, do not check off the “include social security” box. At some point the government is going to need to make changes to the social security system and I would rather you plan as if it does not exist. If you plan that there won’t be social security and it’s there when you retire, you’ll have much more money. If you plan for it to be there and the benefits are reduced or aren’t there at all, you won’t have enough money.

When I did our calculations, I also did not take into account my husband’s pensions. Unless it’s money in my retirement account, I’m not counting it yet. If the pensions are there when we retire, we’ll have a hell of a retirement, but I think at this point we are just too far from retirement to feel secure that they will be there. If you are closer to retirement and vested in your plan, you can reduce the percentage of your income that you’ll need from your retirement account. For example, if you think you’ll need 80% of your current income in retirement, but you have a pension that will provide you with 60% of your current income, then you only need 20% from your retirement account.

How are you progressing toward your retirement goals?

Questions answered: 401(k)’s, Roth IRA’s and becoming a CPA

I got a couple questions from Kas and thought they would be better answered as a blog post than just in the comments section. If you ever have a question feel free to post on the blog or you can send an email to kristin at klingtocash dot com.

1) I just now have enough in my 401k for me to actually want to try to do more with it. Do you have any sites that would easily explain to me what the best sorts of investments are? What exactly is a Roth IRA?

Congrats on contributing to your 401(k). Unfortunately, if your 401(k) is with your current employer, you must keep it in their 401(k) plan. You are limited to the investment options they allow. You can however check on their funds on a site like Morningstar. This site independently rates the performance of stocks and mutual funds. The site also tells you what the fund actually holds (bonds, stocks, international, etc), so you can have a good balance of funds and not have all your eggs in one basket. I would also check with the company that administers your 401(k) plan to see if they have a risk tolerance questionnaire you can fill out (there should be a phone number on your statements). By answering a few simple questions, you can gage how much risk you are comfortable with. I, personally, am a very agressive investor with my retirement funds, but I have a lot of time to ride out the market.

There are two types of Individual Retirement Accounts (IRA’s):

A traditional IRA is a retirement account where you put the money in tax free now. Therefore, when you put money in a traditional IRA, you get a tax deduction now. When you take the money out at retirement, the money is subject to federal and state income taxes, just like wages are. With a traditional IRA you are required to start taking money out of the account, called a Required Minimum Distribution, at age 70 1/2.

A Roth IRA is just the opposite. You pay taxes on the money you put into the account today, but it grows tax free and you’ll never pay taxes on that money again.  There are no required minimum distributions required.

There are income limitations on both accounts, so check with a financial advisor or your accountant to see if you can open these types of accounts.

2) I have a friend who would like to try being a CPA. Know any good books or sites for her to look at to make sure it’s what she wants to do ?

The best thing for her to do is talk to CPA’s and see what they do. Each job I’ve had has been different. Plus, there are CPA’s who work in tax, audit, private accounting (internally for corporations), and in a variety of other jobs. She should contact her state society of CPA’s to see if they have a pledge program for college students. She should also see if her school has an accounting club (sounds boring, huh?). The last thing I would suggest is for her to get an internship in an area that she thinks she might be interested in. Internships are great experience and can really help you decide if this is really what you want to do for the rest of your life.

I don’t really have a “typical day”. From January to April, I’m tax, tax, tax. I eat, sleep and breath taxes. From May to December, I work with my clients on budgeting issues, payroll taxes, and training. I am a Certified QuickBooks ProAdvisor, so I work with a lot of businesses to train them to use the software, clean-up their books and setup and reconfigure their company files. Much of what I do is face-to-face with clients. I’ve had jobs where I didn’t have any interaction with clients. There are opportunities out there for all types of people in accounting. It’s a great field and there is currently a shortage of accountants. I love my job and I wouldn’t go back to working for someone else unless I absolutely had to.

Investing in your retirement and saving for your future

I’ve been watching the market, as I’m sure many of you have, wondering how low it will go.  The only money I have is in the market, since we are not in a position where we have excess money to invest. I am not a financial planner and my advice should not be relied upon by everyone, but this is where my money would go.