I recently had the opportunity to speak with a reporter from CNN Money on the often debated topic about what comes first; paying down debt or adding to your savings nest egg. It’s a bit of the ‘chicken vs. the egg’ conundrum. Responding to a reader’s question, I explained that when caught in this common financial dilemma, there are several factors to consider.
First, have you properly prepared from a financial perspective for an emergency should one occur? I would recommend making sure you have 3-6 months’ worth of income saved to cover any unexpected expenses (i.e. emergencies).
Also, are you regularly adding to your retirement savings? When saving for retirement, time is money, so it’s important to start saving early. Even a small amount can have a big impact later in life.
Regarding your debts, have you considered the amount of interest you’re paying? Most credit cards charge upwards of 20% interest so significant consideration needs to be given to what the debt costs you versus what you gain by adding any more to your savings. You may even want to consider a balance transfer credit card or aggressive debt repayment strategies.
So what comes first, the chicken or the egg? The answer? Well, it depends. Every individual’s financial circumstances are different. You have different paths to retirement, different lifestyles to fund and different debts to pay back. For some the stress of debt hanging over your head might be too much or the concern of not being funded at retirement perhaps keeps you up at night. The good news is that you don’t have to go it alone. When you find yourself in doubt and pondering the age-old chicken vs egg dilemma, seek guidance from a trusted financial advisor. For more information on this or other financial planning topics, don’t hesitate to contact me.