So many people are struggling in the financial department, either in their business or in their personal lives. If you are one of those, you may take comfort knowing that you are not alone. Also take comfort that you have chosen to seek out tips on how to change your budgeting habits for better choices. We have been schooled to control the debt, pay off debt and save money for along time and we often talk about that here on our blog too. But the question often comes up by confused savers…
What’s First? Do I Save Money or Pay Off Debt?
It is much like the chicken or the egg question. But for me, I tend to follow the emergency fund theory. Building up your emergency fund is going to impact you more in a positive way because you will have the cash on hand should something happen you are not expecting. By building a sufficient amount in your emergency fund, you will not need to reach for that credit card, which will allow you to keep paying it down or keep your balance at zero.
Once you have set aside your initial emergency fund amount, be it $1000, $5000 or more, you can then focus on paying off debt. This method allows you the peace of mind to have that slush fund to fall back on should something happen. You are then still in the payoff mode and not the “just use the credit card” mode.
Protecting yourself by setting aside cash into your emergency fund so that you have a cushion is a great feeling. Knowing that the cash is there should you need it allows you to focus on paying down debt and then once the debt is gone, saving more aggressively.
What are your thoughts on this topic? Share your comments below.