Roxanne Langley ~ Money Coach

February 12, 2021

How much should I save every month if I’m in debt?

This is something I stress more than getting the debt paid off. Having an emergency fund is the most important tool you can have. Think of it as self-insurance or risk management. Saving money is always a priority, but the amount you save depends on your other goals, such as paying off debt. A rule of thumb is to save a beginning $1,000 – $2000 to cover emergency expenses. Think of your emergency account as “Self Insurance”. The job of the account is to be a buffer between you and the emergency. It’s a reminder that the account exists to keep you from going further into debt. Without cash set aside to pay for emergency expenses, you may find yourself in a never-ending cycle of paying off a credit card, having an unexpected expense, and having to work on paying off the credit card again. I can remember a time when a small emergency such as a $200 tire replacement would be as difficult to pay for like a $1500 home repair. When your account drops below $1,000, stop the extra payments towards debt and get your account back up to at least $1,000. Once your beginner emergency fund is replenished we work towards paying the debt with extra funds. 

In addition to saving for emergency expenses, save for the expenses you know will happen during the year. This includes scheduled car, medical, and home maintenance. These types of expenses I often label as “short-term savings” and should be a category in your budget.

Now, how much should you have? The emergency fund should be around 6 months of your basic living expenses, more if you can, but I recommend setting a goal for 6 months. This changes depending on your situation, are you a 1 income or 2 income household. Salaried or irregular income? This was one of my greatest personal obstacles when I was seeking help with my finances. At the time I had irregular income and the experts did not have a plan to work with someone in that situation. As your coach, I take this into account to help you come up with the figure you need for monthly living expenses.

Prioritize savings like it’s a bill so you won’t have to pay a credit card bill instead. All your savings, whether short, long, or emergency becomes a line item or category with your monthly spending giving those dollars to protect you during the unexpected. A good percentage to begin saving each month while you’re in debt is $10%. 

Once you pay off your debt, celebrate and treat yourself (within reason). I have a question for you at this point, what would it mean to you or how more peaceful would you feel if you had $10K -$18K in an emergency fund, just in case?

Your Money Coach,

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