Paying off debt vs. creating emergency fund vs. investing

MiketheGrinder

Registered Member
#1
How do you prioritize the money left over after you've paid your monthly bills and purchased the basics? Do you throw it at your debt to get out of the red faster? Do you stash it away in an emergency fund? Or do you put towards an investment vehicle like stocks and bonds? I think most experts will say to get out of debt first or to create an emergency fund three to six months deep. I admittedly put my spare funds towards investments, specifically my 401k to get the employer match. I've also bought other stocks and cryptocurrency. What about you?
 

Mirage

Administrator
Staff member
V.I.P.
#2
You forgot the most common thing people do with their extra money, spend it on consumer goods or services... 😬

For me, it's a combination of all three. Debt + savings + investments. Paying off debt first only makes sense if your investments aren't beating the interest rate you're paying on your debt. Granted, this isn't exactly "Dave Ramsey" approved.
 

MiketheGrinder

Registered Member
#3
You forgot the most common thing people do with their extra money, spend it on consumer goods or services... 😬
Well, I'm putting that under the basics. I mean, if you need a new wool coat for work, then go buy that coat. If you need gas, buy your gasoline. But really, even "spenders" need a plan, right? Lots of folks have credit card debt with 20% interest, but some gurus say you should build your emergency fund first since an issue will land you deeper into debt and can ruin your credit rating if you start missing payments. I was surprised by that advice, but I guess it makes sense for some. It took a long time to create an emergency fund and we just set aside money for bills, gas to get to work, and cat food for six months only. Looking back I think it would have been wiser to put that money into a stock that pays dividends or an ETF.

What do you think about Dave Ramsey? I'm not that familiar with him other than he's popular with conservative Christians. I know a couple that turned their life around with his advice, but it sounded like basic personal finance tips to me.
 

Mirage

Administrator
Staff member
V.I.P.
#4
I’d say Dave Ramsey’s stance on moat money issues doesn’t seem to be politically or religiously motivated. As far as I know, “spend less than you make” is a pretty universally accepted mathematical formula for not going into (or deeper into) debt.

His big thing he is against is the idea that people feel they are entitled to a certain lifestyle at the expense of debt. He generally recommends paying for things with cash and not using credit cards. I’ve even heard that he recommends saving and buying a house with cash if you can, but that’s difficult for most people. I sure am glad I bought my house with a loan instead of paying rent for another few decades while trying to save up.

He is bigtime against buying cars with credit or payment programs. Everybody says “well I want something that’s reliable.” Honestly, every car I’ve purchased has been used and they’ve all lasted several years. I even bought a car for $1,500 once and it lasted me longer than any other car I’ve owned.

I tend to agree with you @MiketheGrinder about building your savings first. It’s true that if something happened to your income, continuing to be able to pay off your debt is critical. Now, if you are debt free, thst’s one thing, but most people at least owe on their house. And six months is enough time to find another job without serious pressure. If you only had one month of savings or less, a loss of a job is suddenly full panic mode where you are taking the first job you are offered.
 

Bubbles

I ♥ Haters
#5
I generally tend to save more. Luckily for me, I'm in a two income household situation so that means even after a lot of frivolous spending we're able to save a up a little. I have my account set up in a way where my bank automatically takes $50 from my main account and moves it over to my tax free savings account. Unfortunately, I've dried up my savings as my fiancee and I decided to purchase a new 4-door Nissan sedan since our coupe was making it incredibly difficult for us to take road trips out of the city due to it's size. Although, I'm not too worried since my TFSA is frozen for the most part which makes it easy to save up. I have an RRSP from work and in addition to that my mom had set up an account for me that is now worth $20,000, which will no doubt come in handy when we need to buy our own home.

As far as debts goes, I've been steadily clearing them. I only have one more federal student loan left and my car should be paid off completely before next Christmas. Hopefully once those are out of the way, I can save up for bigger investments such as my own home and hopefully a better vehicle in the future.
 

Keri35

Registered Member
#6
I do all three! I pay extra on my credit card debt and I put money away. I think I should concentrate more on debt because then I'd be able to put more away after it was paid.
 
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