PVMA Keystone Veterinarian Winter 2021 - 18

Debt Versus Savings,
Which Comes First?
By Evaristo (Ever) Gonzalez, CFP, CLU, RICP
Certified Financial Planner

Which came first, the chicken or the
egg? Another interesting question is...
What's more important, to pay off debts
or save first? When you think about the
issue of paying down debt before saving
money, it's important to take a step back
and consider the big picture.
When you start out in life, you establish credit by utilizing credit
cards, auto loans and student loans. You typically have very
little savings. So, when life's emergencies and events occur, you
usually turn to the only place you have available, credit cards
and personal loans. Imagine if you took a different approach?
What if you focused on using your first dollars to protect your
income and protect against unexpected life events? Examples
include car accidents, lawsuits, illness, death, and disability.
Next you would focus on saving 15% to 20% of gross income
and build up a year's income in savings. Then you can begin
to pay down the non-deductible debt and all debts after that.
This is opposite the approach advocated by many financial
representatives, which is to begin paying all debts without
protection from life's events, and without regard to having a
good savings discipline first.

18 | Keystone Veterinarian

It is this thinking that has Americans with trillions in credit
card debt and student loan debt. Then when an unexpected
event occurs and adequate savings are not in place, the debt
increases. The cycle of building up debt and paying it down, only
to build it up again, is so prevalent in today's society that many
Americans live their entire life with this cycle repeating itself.
So, start today by putting your future ahead of the credit card
companies and banks. Commit to protect your most valuable
asset, which is you and your ability to earn an income. Give
proper attention to maximum auto, home and umbrella
coverages.
Then commit to save a minimum of 15% to 20% of your gross
income and build savings of one year of gross income in liquidaccessible funds. Do not count your 401(k) in this equation as
it should not serve as a short-term savings account. There are
restrictions on withdrawals under the age of 59½ including
penalties and taxes.
Lastly, work on paying credit cards, autos, and other nondeductible debt.
It's OK to be different than the majority of Americans when it
comes to this issue. Different can translate into a successful plan
and future.

PVMA Keystone Veterinarian Winter 2021

Table of Contents for the Digital Edition of PVMA Keystone Veterinarian Winter 2021