Got high-interest debt and no emergency fund? Then don't save for retirement right now.

Kailey Hagen
The Motley Fool

Retirement is the most expensive financial goal most of us will ever have, so it makes sense to start saving for it as early as possible. But there are a few financial goals that should be higher up on your priority list. If either of the following things apply to you, you should definitely hold off on retirement savings until you have these other tasks under control.

It might be tempting after all that hard work to treat yourself instead of stashing more money away. And it's OK to do this a little bit. But saving for retirement takes decades of diligent preparation for most people, so you don't want to put it off too long.

1. You don't have an emergency fund

An emergency fund is your safety net for unexpected expenses. Building one should be everyone's top financial goal because without it, you could find yourself in debt if you lose your job unexpectedly or end up with a costly emergency room bill. And if you wind up in debt, that can make it challenging to cover your basic living expenses, let alone save for retirement.

Your emergency fund should contain at least three months of living expenses, and six months is even better. Some people prefer to keep as much as a year's savings in their emergency fund if they believe they'd have difficulty finding work after a job loss. 

It's ultimately up to you to decide how much you need to save. If you focus on just your essential living expenses, like food and housing, you won't have to set aside as much. But if you do this, you might have to give up extras, like your streaming services, if you find yourself out of work for an extended time. Or you could just build these costs right into your emergency fund budget.

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Keep your emergency savings in a high-yield savings account or another place where you have easy access to it. Don't invest these funds. You may need to withdraw them at a moment's notice and if they're invested, you might have to sell at a loss. You're better off only investing money you know you won't need for many years.

If you end up tapping your emergency fund, replenishing it should be your top priority so you're ready for the next emergency. And you should check over your emergency fund every year or two to decide if you need to make any adjustments. As your expenses grow, you may need to set aside more per month. If they drop, you might be able to transfer some money out of your emergency fund and into retirement savings.

2. You have high-interest debt

You can save for retirement while simultaneously paying off many kinds of debt. But when you're talking about high-interest credit card or payday loan debt, you're usually better off putting your retirement contributions on pause for a little while.

These types of loans carry sky-high interest rates, which can make them challenging to pay off. You could lose more money to interest charges in a single year than you would make by investing the same sum in the stock market. So wiping out that debt is key.

There are several ways you can go about this. The simplest is the debt avalanche method. You make the minimum payment on all your credit cards, then put any extra savings you have toward the debt with the highest interest rate. When that's paid off, you move all your extra savings to the card with the next-highest interest rate, and so on.

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But if you need a little extra help, you could opt for a balance transfer card or a personal loan. Balance transfer cards temporarily halt the growth of your balance, which makes paying it off much easier. But there's usually a fee for doing this, and the 0% APR period will run out eventually. 

Personal loans, on the other hand, give you a predictable monthly payment for the lifetime of the loan, and you don't have to put down anything as collateral. But these loans can also have above-average interest rates, so they're not always the most affordable way to pay off your debt.

And of course, while you're working on getting out of debt, you have to be careful not to rack up any more. So paying attention to your spending habits and sticking to a budget is key. 

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When should you go back to retirement savings?

The only time you may want to save for retirement while you're still working on the goals above is if you qualify for a 401(k) match. If you don't contribute any money to your retirement account, you lose this money forever. So it might be worth throwing just enough in your 401(k) to claim the full match before returning to these other issues.

Once you've built your emergency fund and paid off your high-interest debt, you can safely go back to retirement savings. You may want to reevaluate your retirement savings strategy and possibly increase your monthly contributions so you can still retire on your original schedule. Or you might have to push back your retirement timeline if you're unable to save more.

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