Much like the age-old question, which came first, the chicken or the egg, a common question many people have is, what should I do first, save money or pay off debt? While we wish there were a simple answer, the reality is, the answer isn’t quite so cut and dry.

At the highest, most general level, paying off debt first saves you more money because quite simply, you are likely paying more in interest than you are earning interest. In other words, any debt that you are paying interest on means you are losing money. But that fact doesn’t necessarily mean you should pay off all of your debt before you start saving.

For example, some debts are large and take years to pay off. If you don’t have money set aside in an emergency fund, you are bound to accrue more debt through unexpected expenses such as medical bills or home and car repairs. And let’s be honest, even though we call them unexpected expenses, the reality is, we know they will occur at some point, we just don’t know when.

If these unexpected expenses are not planned for, via an emergency savings fund, they are usually paid for through high interest means such as credit cards, or unsecured personal loans. These methods of payment are traditionally, much higher interest than a mortgage or student loan, which means they cost us more if not paid off quickly. That’s why focusing on paying down all of your debt without an emergency savings fund isn’t necessarily the best idea and could put you in more debt.

So, what is the answer? We believe the best approach is a balanced approach, working on both savings and debt at the same time. So where should you start?

First, make a budget and find out what you’re working with. Once you know how much money you have every month to put towards debt and savings, split it. What percentage split you make is highly individualized and depends on your unique situation.

Next, prioritize the debt you should pay down first. High interest, unsecured, consumer debt, such as credit cards or personal loans should be paid off first. You save money by paying off high-interest debt because the interest you pay is usually more than what you would make saving and investing.

Traditional loans such as mortgages or student loans are important to pay off too, but they are larger, have lower interest rates and will take more time. Making an extra payment here and there while regularly saving and investing money, would benefit you more in the long run than throwing all of your money at it and not saving.

Once you have a plan to tackle your debt, your savings will need prioritizing as well. The first thing you’ll want to save is a small emergency fund of $1000. Then, put all of your money towards paying off your high-interest consumer debt. Once that’s paid off, start making regular contributions to your emergency fund until you save 3-6 months of your cost of living. You may find more success in building your emergency fund if you set up an automatic deposit every month.

If you are employed with a sizable company, you likely have access to and are contributing to a 401(k). If you aren’t contributing to this already, you should immediately start saving the amount you need to meet your employer’s match (if they have a matching benefit) because anything less is throwing away free money. Don’t contribute more than what your employer will match until you have paid off your high-interest debt and built your $1000 starter emergency fund.

If you are saving money in an IRA, the same course of action is advised. Save a smaller amount while you pay off your high-interest debt and build your $1000 initial emergency fund, increasing that amount once you’ve done that.

One thing to keep in mind is that no matter what retirement saving vehicle you are using, be it any variety of 401(k) or IRA your most important ally is time. The earlier you start saving, the better because, with compound interest, even small contributions will grow significantly.

So, let’s recap what we’ve discussed about a balanced approach to saving and paying off debt.

• First, make a budget so that you know how much you are working with.
• Put all of your money into a small emergency fund until you have reached $1000
• After you have made your small emergency fund, put your money towards paying off your high-interest consumer debt
• When saving for retirement, it’s essential to start early because compound interest adds up. If you haven’t paid off your high-interest consumer debt, save a small, regular amount. If your employer offers a money match benefit, make sure you contribute as much as you need to get the full advantage. Do not save large amounts or more than it takes to get the matching money until all of your high-interest debt is paid.
• Once your high-interest debt is paid, put a percent of your money towards an emergency fund that will cover 3-6 months of your cost of living and put the rest of your money towards extra payments on your larger, lower interest debts like mortgages and student loans.

Strictly managing your money isn’t easy, but with practice, patience and persistence, you can conquer your debt. Building a savings and being debt free is about creating a strong foundation for your family to grow on, one that allows you to survive the unexpected and take advantage of all the opportunity that comes your way.  It gives you peace of mind as you grow older and head toward retirement.

Everybody wants a comfortable and stable, life. Using your money wisely during your income earning years by saving and staying out of debt is the best way to ensure you get just that.