Oh, it’s so confusing! First you’re told to diligently save. Then you find out that if everyone is saving, not spending, the economy wobbles and falls over into a recession. If Americans get another stimulus check, what’s the best way to use it? Spend it, or save it?

One suggestion: spend your stimulus check both sensibly and patriotically. Buy something that will save you money in the long run. Some examples? Spend money to make energy improvements on your home. Spend money to upgrade old appliances to newer, more efficient ones.

This brings us to a common question. Is it better to pay off your debts, or create an emergency fund? Many people try to do both at the same time. Many get frustrated because they don’t feel they are making progress toward either goal. Worse, singularly pursuing either goal leaves you open to problems. You could work hard pay off your credit cards. Then you might be forced to run them up again due to a job loss because you haven’t built an emergency fund, for example.

I recently learned of a technique that’s pretty smart. It came from Kim Snider, author of Family CFO (book review to come!). She didn’t have a name for it so I’m calling it the “2-Step Saving/Paying Shuffle”.

Here’s how it works: Instead of trying to pay debt AND save an emergency fund — do both. Just alternate the months. So the first month you put an extra payment toward your debt. The next month you put the same amount into your emergency fund. You keep doing both until you’ve saved enough and paid off your credit card debt!

This method might work for you. Just be willing to start and be disciplined enough to continue. Someday, you’ll be free of your credit card debt and have a nice emergency fund, too. A unexpected windfall, like a stimulus check, will be fun money, not money you try to use and make up for a shortfall!

Further Reading

• Got the “Urge to Splurge”? How to Avoid Spending More Than You Can Afford (0)
• The ABC’s of Budgeting and Finance : P – T (0)
• Are You in Denial About Your Money Matters? (0)
• 4 Things That May Trigger Your Spending (0)
• The ABC’s of Budgeting and Finance : A-E (1)

Tags: Credit card, Debt, Money Management, Payment, Personal finance, recession, Save

This entry was posted on Tuesday, February 17th, 2009 at 9:00 am and is filed under Budget. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.