If you've got multiple financial goals, you might wonder if it's best to put extra money toward your mortgage or increase your investment dollars. Here are a few things to keep in mind as you define your priorities.

  • Stay on track – Your vision of retirement is unique, and so is your path to get there. In general, it's more important to be on track with your retirement saving goals before you pay down a mortgage. And, being "on track" means you're saving enough to meet your retirement needs.
  • Know the trade-offs – What are the trade-offs between paying down debt and investing for your other goals? Your financial advisor can illustrate different scenarios for you, helping you prioritize and balance your goals based on what is most important to you.
  • Build emergency savings – Ensure you've got three to six months’ worth of expenses in emergency savings. This amount can help you manage unexpected, large expenses (or unemployment) without having to dip into your retirement savings. It can also provide flexibility to do the things you want to do, such as switching careers or taking time off to care for a loved one.
  • Assess debt – If your debt balances cause you stress, you may want to consider paying them down. The goal is to be comfortable with the amount of debt you’re carrying.

Setting your goals is not a one-time process. Your financial priorities will likely change over time, and your strategy should as well.

How to calculate debt-to-income ratio

To calculate your debt-to-income (DTI) ratio, divide your monthly debt payments by your monthly gross income. If you’re paying a mortgage, try to keep your DTI ratio at 35% or less. (Without a mortgage, strive for 20% or less.) A higher DTI ratio may constrain your budget, making it difficult to purchase a home, and force you to accept higher interest rates. To lower your DTI ratio, start paying down the debt with the highest after-tax interest rate.