How do you set priorities when starting to budget or set up a savings account?
Should you pay off debt first? Pay off your home mortgage? Save for emergencies?
I think the answer is yes yes and yes, but actually, it depends upon who you ask.
Some advisers tell you to pay off your largest debt first, or the debt with the highest interest rate first, and others tell you the opposite, leaving you more befuddled than ever. Perhaps you’ve also heard that you have to get an emergency fund going before you pay off any debt. Who should you believe?
Well, speaking from personal experience, having an emergency fund – that we’ve used twice in the last few months, has stopped us from putting more expenses on a credit card.
I vote for emergency fund – even a small one – as a first step.
An example:
A few months ago my car broke down. It ended up costing about $400.00 –, which in a previous – before emergency fund time – would have gone on a credit card, and then we would have paid it off over a couple of months. This time I had an emergency fund to tap. The fund itself was not much bigger than the $400.00 at the time, but boy am I glad I had the cash and didn’t have to pull out the credit card again.
(You can also read about my woes of spending my emergency fund for a non — emergency).
As you set up the fund, you’ll still be paying on other bills. If you’ve managed to somehow squeeze out some extra cash by canceling your cable TV, or cooking at home more, you’ll be paying more than the minimum payments due. That’s great. Terrific. You are on your way.
The second step I would do, (and did), is to pay off a small debt – quickly.
Spend as much extra cash as you can muster getting rid of the smallest bill you have. Get rid of it, say Adios. Good Riddance. Goodbye.
It will make you feel better.
For more on this subject read about taking baby steps here
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Five ways to save extra money