Key Takeaways
- Paying down debt and building emergency savings are really two sides of the same coin.
- Whether you choose to focus on one or the other depends upon your mindset.
- What’s important is to keep making good decisions on money.
Six of one, half dozen of another is a phrase that comes to mind when reading an article by Bankrate.com regarding emergency savings and debt. According to the article, when Americans were asked whether they prioritized building their emergency savings or paying down debt, 45% of them answered they’d rather increase their savings.
Now, you may say the opposite – perhaps you’d prefer to focus on paying off debt, as opposed to building your emergency fund. The fact is, these goals are two sides of the same coin. What you prioritize is going to be based off your mindset about your money. These days, many people are finding themselves in financial precarity and are working with a negative cognitive load. Their working memory is down and they find themselves worrying about their financial situations.
These feelings can lead people to making certain money decisions. If they feel like they need more cash in their pockets for an emergency, before they start paying down debt, then that’s okay. If they feel like they really want to get the debt out of the way before they build their emergency funds, that’s okay too.
How can both be okay? Well, if they’re paying down debt, presumably credit card debt, then when there’s an emergency, they can increase that debt. While this isn’t an ideal solution, it’s an option if they need it. On the flip side, if they’re building an emergency fund, when an emergency takes place, they have the funds and don’t need to add to their debt. Hence, six of one, half dozen of another.
How you feel makes a difference in how you operate. The better we operate at home and at work, the better we’re cognitively capable of doing things, which plays an important role in making good money decisions.
So know yourself and where your comfort levels lie as you determine which approach works better for you. Ultimately, both paying down debt and building up savings are good goals to work toward. Until next time, enjoy.