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It's crucial to pay down debts and stay debt-free but also vitally important to maintain an emergency fund of about 3 months living expenses.
Here are the questions:
Should you prioritize saving an emergency fund or paying down debt? Which should come first? Why?
Here are the questions:
Should you prioritize saving an emergency fund or paying down debt? Which should come first? Why?
The most important step you can take today towards financial freedom is to build a 3-month emergency fund. Debt repayment can happen concurrently or afterwards.
You don't want to become homeless or destitute the moment an emergency strikes.
You don't want to become homeless or destitute the moment an emergency strikes.
Why emergency funds?
1. Job loss
Can you meet your expenses for 3 months if this happens?
1. Sickness.
2. Car accident.
3. Death in the family.
Can you meet these needs without borrowing?
1. Job loss
Can you meet your expenses for 3 months if this happens?
1. Sickness.
2. Car accident.
3. Death in the family.
Can you meet these needs without borrowing?
Emergency fund. How?
1. Do the math.
X = total monthly expense.
2. Save 3X in an easily accessible savings account.
3. Don't touch 3X unless it's a real emergency.
4. Rebuild 3X after the emergency.
1. Do the math.
X = total monthly expense.
2. Save 3X in an easily accessible savings account.
3. Don't touch 3X unless it's a real emergency.
4. Rebuild 3X after the emergency.
The bottomline:
DO BOTH.
1 or 2. Pay down debt.
1 or 2. Create an emergency fund.
The action is more important than the order.
DO BOTH.
1 or 2. Pay down debt.
1 or 2. Create an emergency fund.
The action is more important than the order.
