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Investors struggle with many these days. In fact everyone is. But perhaps none more so than those dealing with debt.
When you invest in a Tax-Exempt Savings Account (TFSA), it can be incredibly difficult to watch your investments decline, especially with funds marked as emergency funds. Now you also have to manage debt.
So today I’m going to help you reduce your debt to zero and continue this method of saving to create huge emergency funds that will never run out again!
Enter the “snowball method”.
There is a debt reduction method that many out there have been using for years. It has helped countless people reduce their debt to zero, and it’s been dubbed the “snowball method.”
With this method, you arrange all your debts from smallest to largest amount. While making minimum payments on every single debt you have, you then take any extra money to throw down your smallest debts first.
I mean any extra money. This could be your tax refund. It could be a gift from your parents. Maybe even a raise. If you’re only budgeting one amount, don’t change your lifestyle to accommodate a new budget. Instead, pay off your debt first.
Once that first small debt is paid off, use the same strategy to move on to the next debt. Pay the minimum from the rest, throw it all on this one. When it’s paid, move on to the next one, and so on. It might take two years or so, but your big debt will get paid!
let it go
Now that you’re used to putting money aside using this method, don’t stop now! While you certainly don’t want to get into further debt, I would consider continuing to put your extra money into an emergency fund.
This way you can make sure that you don’t go into debt again. Life happens, market crashes happen! With an emergency fund, you’ll be prepared for the next time you suddenly find yourself in debt.
And I would still consider keeping that emergency fund in a TFSA. Just make sure to invest in something stable. A great option in my opinion is the Balanced ETF portfolio by Vanguard (TSX:VBAL).
This has a 60/40 split of stocks and bonds, but it gets even better. You don’t just have a management team looking after your investments in this portfolio. The VBAL invests in other Vanguard ETFs. So you have a huge group of experts all working towards the goal of balanced growth.
Vanguard also offers a 2.14% dividend yield, with shares up 3.32% year-to-date and 7.27% over the last three years. So this is stable growth you can count on.
bottom line
By adopting this snowball method and using it for your emergency fund, you can reduce your debt and continue saving. Whether it’s for a garage door, your child’s education, or even a medical emergency, you’ll always have cash on hand.
What if there is no emergency? Guess what! You now have plenty of money to spend on retirement. So take advantage of this time and invest in a great stock like VBAL once your debt is paid off.
