Pay down debt or start emergency fund?

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 Q. I have just finished my tax return and am awaiting my refund. I have several major issues: I’m unemployed and my benefits ran out, and I have large outstanding expenses (medical, credit card and student loan expenses which are private so they can’t be discharged. How much of my refund would you suggest I use towards these expenses so I can use the rest for an emergency fund?

A. Having an emergency fund is an essential part of any financial plan. As you’ve seen yourself, having cash on hand in case you ever lose your income or have an unexpected expense is vital.

But there’s a time and place for everything, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Fairfield.

“When I went to college. I remember studying Maslow’s `Hierarchy of Needs.’ Level one is biological and physiological needs — air, water, food, warmth, sleep, etc. The next was safety which includes a home, security, order, etc. Then they get into the higher needs such as love, esteem and self-actualization,” he said. “The premise is that you cannot satisfy the higher needs unless you have fulfilled the basic ones. So for example, if you are starving, your goal in life is not becoming `self-actualized.’ It’s getting a cheeseburger!”

So what that means is that once you pay someone, you can’t get your money back if you need food or a place to live.

That means you should start with the basics — having enough money in the bank to get through this tough time, Lynch said. Then later, you can focus on the debt that you owe.

“Hold onto to the refund that you get, get through this situation by getting employed and getting back on your feet, then you can focus on the rest of the debt,” he said.

Good luck!

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This story was first posted in April 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.