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Why I’m choosing to save an emergency fund before paying off my debt

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It really is the bane of my life.

In my late teens and early 20s I got into terrible debt.  I was pretty much in debt before I turned 18.  As soon as I got my student overdraft the whole lot went on a flat deposit for a flat I’d already arranged to move in to.

From there I had a massive shopping addiction, led a party lifestyle I couldn’t afford and ended up in debt crisis before I even hit 20.  I was shuffling money from one overdraft to pay off a credit card and from there to pay a store card and so on.  I ended up on a debt management plan for 5.5 years and paid every penny back.  All £17,500 of it!  I do believe there are reasons for my stupidity which I’ve explained in the above link, but it was still just that – stupidity.

It was (pretty much) a long and very budgeted lesson learned.

I never wanted to be in debt again, but then a few years later I bought a house.  Boom!  A massive mortgage and the biggest scariest debt of my life. But also a huge investment, security and a future for us and our children.

A sensible debt, even if it is terrifyingly large!

And following that… I have ended up back in debt again with two loans.  One for home improvements as we naively did not save enough money to do up our home, running out of our savings very quickly on our doer-upper.  A second which paid for some surgery that was very important to me, I don’t want to go in to detail about now, and part of that loan also part-funded a car purchase.

And Boom! 

Two personal loans and I’m back in the same debt as I was before.

Though this time it’s not all just my debt and it somewhat feels more sensible.  Kind of.  My debt in my younger years was totally irresponsible.  It was never an investment into anything.  The money was just spent on a clothing addiction, partying every night and lots of eating out.  I was a townie and leading a lifestyle my small shop assistant wage at the time couldn’t afford.  I just took out more credit cards and store cards once my existing ones were maxed out.  I never worked out my budget and I never considered how I would pay them back.

This debt, 10+ years later, was considered.  Incomings and outgoings were meticulously worked out.  Loans were mulled over for days and perhaps even weeks before making the decision.  They had a purpose.  After all, I had never wanted to be in personal debt again.  The mortgage seemed different, but loans did not.   The loans were paying towards investments this time and not just for willy-nilly spending.  These new loans were only taken out as they could easily be repaid.  I now had a good credit rating and was a homeowner so we got great rates and the repayments were easily affordable with our wages.  So I took out the loans and planned to repay them really quickly.

But then life happened and wanting to do fun things happened and continuing doing up our home happened and I never got round to overpaying them at all.  Time has just flown by! 

(For reference, the first loan we took out around 4.5 years ago for 10 years and the second loan we took out almost 2 years ago for 7 years.  Anyone with kids knows how quickly time goes and 4.5 years has gone in a flash.  Also you may know how long it actually takes to do up a whole blooming house, top to bottom, walls, floors, kitchens, bathrooms, you name it.  We thought we’d be done in a few weeks… 4.5 years later… still going…!  We know for next time.) 

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We hate having the debt though, even if it is affordable this time around and it’s not crippling us.  It still feels horrible to owe money.  Plus we’d much rather that cash back in our disposable income each month, into our savings or overpaying our mortgage each month.  So now I am kicking myself into gear and, if nothing goes wrong, I have set myself a two year plan. 

The first part of the plan is to save an emergency fund this year.

I panic so much that something will happen to my income as I’m self-employed and there are no guarantees.  I also get anxious about Ben’s wage.  What if he’s made redundant or gets ill and can’t work?  So, to ease this constant internal twisting and churning anxiety I feel, we are squirreling away as much money as possible every month to save a substantial emergency fund by the end of this year.

Then I’ll pay off the loans next year.  Or we’ll even start this year if I can be really good and save our emergency fund before the end of this year.

Once the emergency fund is saved then we’ll start overpaying our loans by making regular lump sum payments every couple of months with as much money saved as possible.  I reckon if we really cut back for a year and save as much as possible we can pay off our debt in one year.  Lots of no-spend months, strict budgeting and trying to make extra money in as many ways as possible!

I’m ready to be debt free again!  Well, aside from the mortgage!

This might seem the wrong way to do things to some, but for me, it is the right way for me right now.  If we lose our incomes then we can’t pay for our mortgage, food and bills with a paid off loan, but we can pay for it with an emergency fund. 

So to me, right now, it makes sense to first save an emergency fund that can fund our mortgage, bills and food if we need it to in an emergency situation.  Then once that’s saved we will tackle our loans and get those gone.

Then, I hope, I will be able to relax a bit and not constantly feel anxious about money or worrying something terrible will happen to one of us.

Money is something I constantly battle with deciding if I’ve made the right decisions financially, constantly questioning my decisions.  But I’ve made my mind up on this one and this is the right way for me to tackle these two financial goals of mine to ensure we have short to mid-term financial security in an emergency.