“It’s a teeter-totter. One side can’t go down without the other coming up, and unless you’ve done something horribly wrong and are a really awful playground equipment jockey, you can’t get both sides to come down at the same time.“
I’m not the brightest bulb in the knife drawer, so when I talk mathematics, I like to keep it simple enough for even me to understand. So here goes…
Simple math dictates that if you have 10 dollars to spend, you can spend less than 10 dollars, but you certainly can’t spend more.
Am I with me so far? I am? Great! Let’s move on.
If we carry that same analogy forward to how my wife and I used to operate my life, if we got 10 dollars, we would immediately spend that 10 dollars on dumb stuff. Then we would hit a point in the month where we needed additional money for legitimate reasons, but again… we only had that 10 dollars. So we would instead charge things on a credit card. Simple!
Listen folks, we didn’t get into our current situation by making smart choices. We made the financial equivalent choice of stepping right into the ring with an MMA champion because we watched a Jackie Chan movie from our couch and thought “it all looked kind of easy.”
Now that we’re over that way of thinking and have firmly placed our life back on track, we don’t have the credit cards anymore. I almost said, “as a fallback,” but that’s like saying, “We don’t have the pit of spikes to catch us if we fall off of this tightrope anymore.”
The 10 dollars we have is now the 10 dollars we have.
In our situation, we had some money in a 401k, but literally no money in a savings account of any kind. So now we have two things that we need to accomplish:
- We need to pay off our debt.
- We need to put some money into savings.
Dave Ramsey’s approach to this is wildly aggressive. He basically says you should get $1,000 into an emergency savings fund, and then divert every remaining penny to paying off your debt as quickly as possible.
David Bach on the other hand goes for an approach of splitting any funds you have almost 50/50, with half going towards savings until you’ve got 3-6 months worth of salary built up, and the other half going towards debt.
Almost 7 months into this process and I’m still not sure which one I side with.
On the one hand, I appreciate Ramsey’s maverick-like approach of running full steam at the problem and putting everything else on hold until you’ve ripped that debt a new one.
On the other hand, I get where David Bach is coming from of making sure you tackle your current problem while at the same time responsibly preparing for a financial emergency.
The simple fact is that you can’t have your cake and eat it too. If I have that $10 to spend each month, and I spend $8 dollars of it on bills, then I have $2 dollars left. Again… simple math.
If I take that remaining two dollars and put it towards outstanding debt, then nothing goes to savings, but I pay my debt off that much quicker. If I split it, it will take longer to pay off the debt, but I get some piece-of-mind security.
It’s a teeter-totter. One side can’t go down without the other coming up, and unless you’ve done something horribly wrong or are the world’s worst playground equipment jockey, you can’t get both sides to come down at the same time.
Right now I’m approaching with more of a Bach mindset, in that I’m trying to build some kind of savings so that I can cover expenses that always seem to pop up. A prime example of this would be this month where we got hit with soccer registration fees for both of our kids, totaling around $250 dollars. If I hadn’t been putting some money into savings, we wouldn’t have been able to cover this, as it was a semi-unexpected expense.
So I feel like I need to get some savings built up before I can then shift gears to the Ramsey approach, and $1,000 just isn’t enough. I own a house, I own vehicles, I own… stuff. Those things require maintenance in the form of oil changes, homeowner dues, new tires, appliances breaking down, roofs leaking, etc. $1,000 is nothing in the face of some of those issues, were they to arise.
The figure I have in my head is more in the $10,000 range. I’d like to get $10,000 in a savings account before I go off and divert every possible penny to paying off our debt. I’m not sure if this is the right approach or not, but it would be piece of mind for me, and that’s important as well.
I feel pretty sound in almost all of our financial planning and approach to solving our problems thus far, but this is an area where I’m still not totally committed either way. As I called out above, I can see merit in both approaches, but I think the side of me that worries will overpower the maverick side, and I’ll ultimately save the money first before going hog wild on paying off the debt.
Keep in mind that we’ve gone for the better part of 25 years without any savings to speak of. That’s pretty staggering when you think about it, but we also had credit cards to fall back on when emergencies would arise.
There will come a point in the future where the debt side of the equation will be gone. We won’t have to worry about making a choice, and will instead be placing all of that money directly into savings. That will be a glorious day full of singing birds, sunshine, and sparkles, but until that day arrives, we have to make choices.
What’s your approach to saving versus paying off debt? Are you the reckless maverick who throws caution to the wind and focuses on nothing but debt? Or are you the conservative who believes that saving for a rainy day is always the best approach? Are you teeter or are you totter?