Is it better to pay off debt or save for an emergency?
The egg and the chicken debate might not be significant because we consume both. When it comes to choosing one over the other it can be challenging, saving for an emergency and paying the debt both are equally important.
Deciding to allocate funds to your budget is a standard we all want to adhere but not all can afford to do that with perfection.
Never mind, you’re not alone.
Overcoming The Hesitation
Debt repayment need not be a regular affair. You can at least pay the minimum amount and keep something for the monthly savings, even a little amount is fine.
Deciding between the two options is directly proportional to the individual circumstances so stop reasoning prioritizing as a deciding factor.
Both clearing debts and savings are two sides of the coin and hence for the benefits of long-term financial health establish your habits in full-fledged mode.
Savings Is An Option
Of the two priorities, savings can only happen if the debts you have allow you to do that. Debts are not long-term but savings are, both can be monthly but skipping the savings will not do any harm.
Savings is an added responsibility that acts as a cover during an emergency. The delay in starting savings can aggravate your bad financial status and moreover, a substantial amount of saving money will end your debt instantly.
Sometimes, you may come across sudden unavoidable spending and fail to keep some amount for savings that month. It is not going to affect you in any way.
Debts Are A Liability
Debts are like raising water levels if you don’t check them drowning is for certain. They come in all sizes and it can become cancerous if you have an undisciplined financial plan.
The problem with debts is even as you are inching towards clearing one of them the other is right behind the previous. The continuous chain of debts can affect your plans of saving money for the future or if you manage to save some money it will only serve the purpose of debt clearance.
The best part about debt repayment is that you pay minimum interest and can still breathe easy till the tenure of the debt.
Dependency On Job
Its COVID times so job security is at an all-time higher risk. Now, if you are paying the debt aggressively and clear the debt with your emergency savings then all the money is gone as well. The cycle repeats by borrowing money and starting afresh again.
Remember, if you have savings, that can help prevent too much dependency on the job and use it in the event of a layoff or shutdown. Not only that in the worst-case scenario when you are unemployed with zero savings the craving to do something and anything is higher. Finally, you end up doing a lower-paying job.
A Firewall For Your Savings
It is quite common for us to draw money from savings every month instead of contributing to it. So, work on your monthly contributions and focus on managing your expenses within your available income.
Make your savings very hard to access so that you’re tempted to spend less and not more. Deposit cash in a bank with no access either physically or online. A recurring payment to the bank every month will slowly fade away from your memory and you start planning with what is left.
Alternatively, using an emergency fund for your daily expenses can even stop you from using the income completely. Eventually, the savings will build over a period of time and the future becomes more secure.
Few Dollars Really Matters
A trap that everyone falls for is, come on! it’s just $5, nothing wrong with it. Try stopping yourself from binge spending and 6 months down the lane you’ll see the difference.
The longer your savings has to grow, the better for you.
Sometimes speeding up your savings is necessary because the emergencies can be back-to-up and there is little time for you to act.
For instance, you can walk home instead of taking a bus or cut down your addictive tea or coffee habits. Start cooking at your home and avoid going out to eat frequently. Do it for one month and the results will be astonishing.
There are no rules and nobody is asking you to follow them; it is the fear of breaking them.
A Lesson For All Ages
The pandemic will remain a dark phase in the history of mankind but that is for record purposes. There is something good in every bad thing that happens.
The way we look at things has changed, the pandemic has helped us in realizing the basics of money management. People are hungry, jobless, frustrated, saddened but those are emotions nobody can control. The silver lining in the entire episode is that we have learned how important savings are at times of distress.
As humans, we all learned the hard way and began our journey by correcting our mistakes. Going forward, all you have to do now is maintain the financial strategies that are helping you survive the catastrophe.
Life will never remain the same in the future and the one who has enough money in his kitty can weather any financial crisis. We may have discussed the possibilities of financial security but actually what is more crucial is having some funds ready before something hits us again.
Everything has been neutralized and brought down to zero and hence you start from scratch but this time minus the earlier mistakes. Stop worrying about investing at the moment. Save as much as possible till you get the courage to use it for something that you had in the back of your mind.
There is nothing wrong with having fun but how you are going to have fun is something that is serious. Finally, follow these principles to fine-tune your savings strategies:
- Party, but not hard
- Spend but don’t overspend
- Go shopping but avoid binge shopping
- Save but don’t over save
- Don’t fall prey to online shopping
- Debts are good but don’t turn them to be bad
- Be ambitious, not over-ambitious
- Learn to say ‘No’
Overall, enjoy your life with what you have and never be pessimistic. You don’t have to prove yourself to anybody because there was never a need to do it.
The journey has just begun, hold your ground!
By Karthik V