Wednesday, February 22, 2012

“Why Save When You Have Debt?”

Because sometimes it comes to this.
Photo by Daniel St. Pierre

This question was posed to me in response to this post, in which we discussed our budget (I was also thrilled by the lively Facebook discussion that ensued).  I thought it was a fair question.  The logic behind it was, we are charged a much higher amount of interest on our debt than we could ever hope to earn on our savings.  This is true, and I’ve noticed that even experts can’t agree.  Some state that you should put every extra penny into paying down the debt and leave saving until the debt is gone.  Others argue that you should do both because you never know what life is going to throw your way.

I personally agree with the second camp.  What good is paying down the debt if every one of life’s little tailspins causes you to add onto it?  Take the car incident.  If we had had our emergency fund built up, we could have just run to the bank and solved the problem.  Instead we had to borrow money and just tacked on more debt.  That’s not helpful.  It’s completely a step in the wrong direction.  If every time something goes wrong I add on more debt, I’m just endlessly throwing my money into a bottomless pit.  The point of saving while I work on the debt is to keep a stash of cash handy for dealing with emergencies. 

While the logic behind not saving until the debt is paid off is sound, I believe that it doesn’t take the reality of day-to-day living into account.  Shit sometimes happens.  I want to be prepared when it does.

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