Building an Emergency Fund

While Paying Off Debt: Yes, You Can Do Both

Balancing the goals of paying off debt and building an emergency fund may feel like walking a financial tightrope — especially when it seems like every extra dollar goes toward bills. But building an emergency fund, even a small one, is essential. Life has a way of throwing surprises our way, and without some savings set aside, an unexpected expense can quickly push you deeper into debt.

An emergency fund acts like a mini insurance policy. It protects you when the car needs a sudden repair, when a medical bill arrives out of the blue, or when a job change creates a temporary income gap. Without savings, those curveballs often get charged to high-interest credit cards — making your debt problem even worse.

Start Small, Think Smart

Traditionally, experts have advised saving three to six months’ worth of essential living expenses. While that’s still a solid long-term goal, more recent thinking suggests that a more achievable short-term goal — such as $2,000 — can offer meaningful protection. In fact, half of all Americans haven’t yet saved that much. By setting your sights on a $2,000 goal, you’re already ahead of the curve.

If $2,000 feels like a stretch, begin with a smaller, consistent savings target. Maybe it’s $10, $20, or $50 a week — whatever your budget allows. Over time, those smaller deposits will add up. Once you hit $500, keep going. That $2,000 goal will feel closer with every paycheck.

Finding the Right Balance

Let’s say you’re currently allocating $500 per month toward debt repayment. Redirecting a portion of that — maybe $100 — into savings can help you build your emergency fund without losing momentum on your debt. That approach leaves $400 still going toward debt each month while giving you breathing room when the unexpected occurs.

For faster savings, you might opt for a 50/50 split temporarily. Contribute $250 to savings and $250 to debt for a few months, until your emergency fund hits $1,000. Once you’ve built that cushion, you can shift more focus back toward paying down what you owe.

Not all debt is equal, though. High-interest credit cards should still be a priority, especially if they carry rates of 20% or more. But even then, having $500 to $1,000 tucked away in savings is smart — it can help you avoid adding to that balance when life doesn’t go as planned.

Tips to Save Faster

Automating your savings is one of the easiest ways to build an emergency fund. Set up a recurring transfer from your checking to your savings account — ideally right after each payday. This way, saving becomes a habit, not an afterthought.

When you receive an unexpected financial windfall, like a tax refund or bonus, use it wisely. Instead of spending it all, divide the money between your debt and your emergency fund. You’ll get the best of both worlds: less debt and more security.

If your current income doesn’t leave any room for savings, it might be time to explore other options — like picking up a side hustle or seeking higher-paying job opportunities. Sometimes, increasing your income is the key to achieving both savings and debt goals.

Where to Keep Your Emergency Fund

Your emergency fund should be kept somewhere safe, accessible, and interest-earning. A high-yield savings account (HYSA) or money market account at a credit union is ideal. These accounts offer better returns than traditional savings accounts and are typically insured, so your money stays protected.

Stay the Course

Don’t stress if progress feels slow. Just like paying off debt, building an emergency fund is a gradual process. What matters most is consistency. Save what you can, as often as you can, and soon you’ll find yourself better prepared — and less stressed — the next time life throws you a surprise.

You’ve got this. One step at a time.