I’ve Paid For This Twice Already…

Savings Vs Debt Elimination: Saving’s Side of the Story

While most of the time I’ve written this blog, I’ve made debt elimination my primary focus, there is much to be said in favor of putting money into savings even while still in debt.  From a small emergency fund to a full-blown savings plan, debt elimination isn’t always the first course of action.  While I do generally fall into the debt elimination camp, even I saved a small emergency fund before I began aggressively eliminating over $30,000 in debt, and I recently upped that emergency fund in light of recent events and our economic situation.  Here are a few of the reasons that creating some level of savings may come before debt elimination in a person’s or family’s priorities:

Saving money doesn’t commit it

When you pay money to a debt, you are doing just that - letting go of money under your control and giving it to someone else.  This reduces your obligation to that person or entity, but it also commits that money.  The money’s gone, and you can’t take it back and make another choice with it.  When money is put into savings, it is flexible.  There are many possibilities for the money you save.  Which leads to the next point…

Preparing for the unexpected keeps the unexpected from destroying you

One of the things, maybe the main thing, that throws a person’s or family’s finances off track is the occurrence of something unexpected.   From a home repair to a car repair to a job loss to a health problem, there are many unexpected things that can happen.  Having money in savings allows you to deal with unexpected things without going deeper into debt.

Security happens in many ways

Having money in savings provides a level of security and a feeling that one can handle life’s challenges.  This relates to the above unexpected comment, but is different because it is the provision of peace of mind even if nothing unexpected happens.  That level of security is sometimes necessary even more than the security of eliminating a debt.

Interest rates don’t lie

What happens when your savings rate is higher than your debt rate?  While that might not be common in today’s economy, it has happened before, and will happen again.  In fact, some people currently have student loans at a low enough interest rate that their savings rate at some point may exceed it.  While that may not be a big enough reason for some to save vs aggressively pay down debt, it can make financial sense.

Should you pay down debt aggressively or save money aggressively?  Only you can really answer that question, by really looking at what makes more sense for you.  What makes your heart feel good?  What mix of savings and elimination work for you?    Where does your perfect mix lie?

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