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By Taylor Kovar,

Hi Taylor - I don’t have an emergency fund, and everyone tells me I need one. I do have debt, and everyone tells me I need to get rid of it. So… help? It feels like I can’t do both and I can’t skip either. - Cody

Hey Cody - I know exactly what you’re going through. This is a real chicken-or-the-egg scenario, as one thing has to come before the other but no one will give you a clear answer about which.

    I’m guessing you haven’t started putting money toward an emergency fund because you can’t see your way around monthly debt payments. Debt will keep piling up if you try to save instead of paying it down, right? If saving money means ignoring your debt, are you really saving anything?

    The issue is, are you actually getting your debt paid down? Debt has a nasty habit of sticking around, and it can remain the reason your savings don’t grow for a long time. Eventually, you have to shift your focus - do you not have savings because you have debt, or is your lingering debt the result of insufficient savings?

    I would imagine you’re thinking it’s the former - outstanding debt is keeping you from saving. I’m going to try to explain why it might actually be the opposite. This has a lot to do with how you budget, so bear with me as I break this down.

    Every month, you have necessary expenses - rent, groceries, utilities, gas, etc. You also have monthly loan and credit card payments. I assume these categories, plus maybe some travel and entertainment expenses, take up all your available funds. This is normal for a lot of people.

    The issue arises when irregular-but-necessary expenses arrive, like owing taxes or fixing a blown radiator. If you don’t factor these costs into your annual expenses, it’s pretty much a guarantee you’re going to use a credit card to cover them.

    In this case, the solution is to focus on saving before you put all your energy toward tackling your debt. In the short term, you won’t pay down your debt as quickly. In the long term, you’ll stand a better chance of ending the endless debt cycle that currently dominates your finances.

    When you’re fighting debt, an emergency fund feels like a luxury; must be nice to have money that’s there just in case. In reality, you should have several small “emergency funds” that can cover insurance payments and car registration, things that aren’t actual emergencies, but which shouldn’t be put on a credit card.

    I would recommend changing your perception of an emergency fund to view it as money that helps you avoid future debt. In any case, it’s definitely worth setting money aside even as you pay down those pesky credit card bills. Good luck, Cody!

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