Financial counselor: save cash for emergencies

U.S. AIR FORCE ACADEMY, Colo. -- Having an emergency cash cushion is critical to financial success. Military Saves Week began Feb. 21 and continues through Feb. 27. This is a great time to get your financial house in order.

Even in the best of times, it's wise to have an emergency fund to provide liquidity when you need it.

I am often asked if it's better to pay down debt or save, and I always suggest doing both -- simultaneously.

The stress of carrying excessive debt is dreadful. Not only does having huge debt restrict what you can do with your current income, but it tremendously affects decisions on what you want to do with your money in the future. If you don't have an emergency cash cushion, just how will you pay for that sudden car repair or buy the airline ticket to visit a sick relative? Well, you might have to put it on your credit card and go further into the hole!

Most budget experts recommend setting aside 10 percent of one's income for savings; 20 percent if possible. If you have excessive debt, try allotting 10 percent to savings and 10 percent toward paying down debt. Set up allotments so you stick to your plan. As a result of setting this money aside first, you are forcing yourself to live on less than you earn. You will no longer be living paycheck to paycheck.

Start by building your emergency cash cushion with your 10-percent savings portion. This fund should equal about six months of normal expenses and should be "liquid" or easily accessible in case of an emergency. When you've got your emergency cash cushion funded, then shift the 10-percent savings to fund your mid- and long-term goals. Perhaps you're saving for a car, college for kids, or your retirement.

If you're trying to pay down debt, try developing a plan. Go to www.powerpay.org to see how long it will take to pay down your debt paying only the minimum. If you can devote extra "power payments" to your plan, watch to see how much time and money you save. If you are serious about getting rid of debt, you must not add to it; therefore, charge no more.

Editor's Note: Ms. Kramer is an accredited financial counselor with the Airmen and Family Readiness Center's Personal Financial Readiness Program.