Money Coaching Hub

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Should I save for an emergency or pay my debt first?

emergency fund

You’re in a tricky spot. Weighing up both options can be hard, but if you want to make sure your long-term financial health is protected, it’s important to prioritize building an Emergency Fund before paying off debt. Let me explain why: let’s say you have €20K of debt and no savings – the most sensible thing would be to focus on saving first while making additional payments towards your debts only when possible; this way any unexpected costs won’t cause further money problems down the line!

Saving – the essence of your personal financial plan

Building your emergency fund should be your primary target of your personal finances. You need to have at least 3-6 months’ worth of savings in that fund, whatever you feel most comfortable with. Some may even go up to a year or more, there is no rule. The important thing is to start building that fund and start fast. You can never know what happens in life. Who would have predicted COVID-19 and the disaster it brought with it in an age where science is so advanced? Who would have thought losing his job and spending months trying to make ends meet due to such an unexpected outcome? That is why the fund is called an Emergency Fund, it is used only for such emergencies.

Start building that fund – save that €100 extra each month. By the end of the year you’ll have €1200, which for many might be a month’s worth of their salaries. Month by month you start building momentum, and when you have momentum on your side, you become unstoppable – before you know it, you’ll have that 3-month fund built up, ready to serve you should the unexpected crop up.

Save it before you spend it

‘I never have money left to save at the end of the month’.                                                                                 

How many times have we heard it?

Many financial planners will repeat the old adage: ‘Pay yourself first’.

Fine, you might say, but how do I do that in practice?

There is no way you can escape the debts you have – home loans, car loans, student loans, credit card debt: they all need to be paid on time. So what can you do?

  1. Pay the minimum possible on your debts per month, don’t put in anything extra until you have built that Emergency Fund
  2. Find your Latte Factor – these are the various small routine expenses that can have a large enough impact on our finances. In fact, these expenses are not necessary and can be eliminated.

Following just the 2 steps above can have an incredible effect on your personal finances. You may not manage to save €100 per month, it might be €50, or it might be just €10. No matter what the number is, it is still good. Remember it’s all about building the habit of saving, which makes you a saver. As you get comfortable with balancing spending and saving, the transfer amounts to saving automatically increases.

Paying your debt first can impede your Emergency Fund

Have you ever thought about cutting a substantial amount off your debt this year? It may sound great on paper, but life isn’t always that straightforward – what if an unexpected expense comes up and takes priority over paying down your debt? Maybe it’s something related to health or the kids’ needs, or maybe even just replacing another essential item in the house. Making sure those expenses are taken care of should come first!

Let’s keep one thing in mind here. Once you put in that extra cash on your debts, there’s no way of getting them back. So, if you’re thinking of dedicating extra funds towards your loan, always leave a part of it to your savings fund. You can never know what happens in life.

Create the Emergency Fund first

Having a nest egg of savings can make you feel much more secure, especially when life throws unexpected curve balls. With debt, we have the opportunity to pay it off bit by bit – but that’s not an option with these one-off costs. It all comes down to having reserves in your back pocket!

Do you want help building that Emergency Fund?

Some guidance and motivation along the way might make all the difference in the world. And that is what makes the Money Coaching Hub great. We’re the Hub for you if you want to make a difference in your financial life. We’re here for you if:

a.     You want to be the leader of your financial future.

b.     You’re ready to take your first steps towards a more organised financial life.

c.     You’re ready to start saving.

d.     You want to enhance your savings.

e.     You want to start investing.

f.      You want to learn how to budget.

Drop us an email on for further information. You can also choose to book a complimentary 30-minute Google Meet call.