These days it feels like everyone wants millennials to feel guilty about money — from corny memes about avocado toast to the gig economy encouraging us to never check out of work. Any purchase, no matter how small or essential, can feel like a Birkin-level splurge. Even the language around debt can make you feel like a loser. Lower-interest loans like student loans, car loans, or a line of credit are classified as “good debt” by the financial industry. This label overlooks the fact that a financial burden, no matter how manageable, is just that: a burden.
While your friends buy houses, take dream vacations, and get married at weddings that have their own dessert chef, you’re stuck at the crummy-yet-stable job, wondering how to get out of the debt you’ve taken on for your royal blue sedan (which we’ll call Agatha).
Fortunately, there are steps you can take to stay on top of the debt for your beloved Agatha without putting your future on hold. In doing so, a path forward in your financial situation becomes clearer. But first, make sure you’re hitting your minimum payments for Agatha every time – missing them will hurt your credit score, preventing you from making significant purchases down the line. And since your awful boss is the kind of guy who downsizes an entire department when he’s had a bad game of golf, you should have a slush fund. But how?
There’s no hard and fast rule of how much you should split between debt and savings
If your debt has over a 5% interest rate, focus on tackling that before saving. If it’s below 5%, it really comes down to your individual situation: whether or not having debt of any kind makes your skin crawl, and of course, what you’re saving towards.
When you hit this fork in the road, ask yourself one question:
Is there something I'm dying to save up for that will better my future? If the answer is no, start using your extra cash exclusively to pay your low-interest debt (keep that slush fund safe, though!). But if it’s your dream to move to the big city, or one day see “Agatha’s Auto Parts” in a local TV commercial, just keep making those minimum debt payments (and more, if you can) while putting your extra money towards savings.
How much of your money should you be socking away for either savings or debt?
Try 15% of your paycheque, then once you’re used to that figure, up it to 20%. If this seems unattainable, use a budget to set a realistic number. Then commit and stick to it!
Then there’s retirement.
Maybe you see it as something far off or a previous generation’s precious and unobtainable relic, but there are steps you can take to save towards it. Max out your employer-match program, if you’re lucky enough to have one — since your boss contributes the same dollar amount you do towards retirement. It’s free money. If you don’t have the program, contribute 5-10% of your income towards an RRSP, or a Registered Retirement Savings Plan. This is crucial, as it will help ensure you’re not working when you should be enjoying your grandkids or yelling at someone else’s for playing hockey too close to Agatha (yes, you still have the car. Good call. By this point, it’s a classic.)
Make it easy on yourself. Automate everything.
All this planning might seem overwhelming if you’re scatterbrained or time-stretched. That’s why automatic payments are truly a godsend. Just automate your debt payments, whatever amount you're contributing to your savings, and the money going into your shiny new RRSP.
Low-interest debt might be “good” to some, but don’t feel guilty or stupid just because you’ve been told it’s easy by someone who can balance a checkbook without Googling how to do it. Like anything, getting on top of your finances is more about time, patience, and practice vs. natural “skill.” Keep at it, and your basic brunch selections will be that much easier to enjoy.
Jordan Darville is a writer, editor, and content guy based in Toronto. He refuses to feel guilty for getting takeout to celebrate a successful pitch.