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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? Feels like I can't do both and I can't skip either. - Cody
Hi 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 imagine you're thinking it's the former; debt is making it so you
can't save. 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 continuous debt cycle that currently dominates
your finances.
When you're fighting debt, an emergency fund feels like a luxury;
it must be nice to have money that's there just in case. In reality,
you should have an emergency fund that can cover insurance payments
and car registration — things that aren't actual emergencies,
but also shouldn't be put on a credit card.
You may need to work on your perception of an emergency fund and 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! |
| Legal Disclaimer:
Information presented is for educational purposes only and is not
an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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