I’m currently trying to build up my emergency fund to $15,000. This fund is to cover job loss, anything wrong with the house or cars, and so on. I don’t separate my different emergency funds just yet.
I often ask myself when I should apply more money to paying off debt or to use more to fund my emergency fund. And then I also wonder if I should just take some of my savings to pay off my debt. Here’s a great article on this. Here are some tips in order to help you figure out what you should do:
First off, do you even have an emergency fund? If your savings are earning you less than the cost of your debt/loans, then of course you will be saving money by paying your loans first (instead of saving). But if you don’t have an emergency fund set up at all, then paying off your loans completely first might not be a great choice. I would try to make an emergency fund of around 3 months pay. That’s what I’m trying to do right now. In the article it says just to have an emergency fund of $1,000 at first, but I do not think that’s enough. After I have my emergency fund set up, then I would start aggressively paying of any debt like it says in the article.
I’m still paying my debt right now, I’m just also trying to finish my emergency fund also.
How much do you have in your emergency fund? What’s your plan of savings versus paying off debt?