Save for emergencies, Save for retirement or pay down debt? Help!

I was around 23 when I started my job, and I had $60,000 in debt.

I had to make a choice, whether to save cash for emergencies, save for retirement or pay down debt.

Everyone has this kind of dilemma when they start taking care of their finances and I struggled a lot with this, so I thought I’d go over the reasons for doing what I did, and try to offer some advice in hindsight.

My strategy was pretty simple:

  • Save $1000 in my Savings/Emergency Fund
  • Contributed 100% to my company’s 4% retirement plan ($400/month)
  • Funnel every single red, squealing penny towards debt using a budgeting tool
But this will not work for everyone.

I am going to go over each category and my logic for each..


I saved aside $1000 as my savings/emergency fund. Now, I separate the two – my savings is for short term goals (travel, car, etc), and my emergency fund is not to be touched under any circumstances unless I lose my job or there’s a dire emergency.

No, it was not even close to 3-6 months, let alone 2 years of living, but I had a steady job (no talk of recession then) and I was pretty secure in my earnings at the time.

It was still a risky move to make, but I also had family to lean back on (for food and shelter, the basics) and I didn’t have any other loans except for my student ones.

Worse comes to worst, I’d ruthlessly tap my budding retirement fund, and pay the penalty if I had to.

I wanted to avoid this.

Good financial prudence will tell you that this idea was STUPID to live on the edge like that, but I should mention that I had no rent or fixed bills other than my loans and cellphone, because I lived out of a suitcase for 2 years, travelling as a consultant.

I didn’t have bills, and if I had to, I knew I could go to my siblings for help.

Still, I should have saved at least a month of bills, like $2000 instead of $1000.


I was young so I didn’t need to save for retirement, but I made the decision to do so because of the 4% company match.

(Hey, free money!)

So the decision was pretty easy for me. I just wanted free money and I was willing to take longer to pay back my debt to do it.


I funneled everything else I had towards debt.

I earned $65,000 at the time, so I had a lot of disposable income to put towards debt because I turned into an obsessive debt-killing monster, and armed with my budgeting sheet, I didn’t even want to shop for clothing or jewellery just so I could put that money towards debt.

Everyone told me to put some entertainment money aside, but I couldn’t and didn’t want to.

However, if you can’t go as extreme as I did and turn into a debt-destroying monster, you should definitely follow the advice of those wiser than I, and put aside $50 – $100 a month for going out.

So now, for the advice – what to do with the following categories:

  • Save for emergencies/in general
  • Save for retirement
  • Pay off debt


Well, let’s think about this one.

  • Do you think you have a secure job?
  • Do you think that if you lost your job, or got hurt, you’d be okay financially?
  • Do you have people to help you out or fall back on?
  • Do you feel comfortable living on the edge?

If you answered no to any of these questions, then you definitely need to save SOMETHING.

I saved only $1000, because that was sufficient for me to feel ‘comfortable’, because I could always find another job, or help in a pinch, and that money was more than enough to cover my loans for at least 2 months.

Dave Ramsey also suggests $1000 and funneling everything else towards debt, but if you answered “No” to a lot of those questions up there and don’t have the luxury of feeling secure otherwise, then you need to save 3 months worth of emergency cash before starting to pay down your debt aggressively.

This means, you pay the minimums on your debt until you have saved 3 months worth of living expenses.

Then after you’ve saved 3 months, put the money towards retirement and/or debt.


I was able to put off saving for retirement until I cleared my debt, just because I had about 40+ years to save.

But if you are nearing retirement (45+ years old) you have a dilemma.

You have to not only clear your debt, but save for retirement because it’s only 20 years away.

But how much do you save?

The answer is always: It depends.

Let’s start with the hard numbers:


  • Money put in at start of each month
  • 8% Conservative Return
  • 20 years to save up for retirement
  • Retired at 65 and stop working completely
  • Live until 90 (25 years of living)

And you get this snazzy chart with compounding interest:

I’d like to point out a couple of things in that chart. With 20 years to save, and 25 years to live without working, you’d only have an income of around $2000 a YEAR if you saved $100/month starting now.

And even if you saved a large amount like $1000/month, you could only take out $23,700 a YEAR as income.

Would that be enough to live on?

Granted, I am not counting in Social Security or any other Old Age Pension that may give you a couple hundred extra dollars more a month, but I think that chart speaks for itself.


Look, as long as you can meet the minimums, and pay a little bit extra towards the principal while saving for emergencies and for retirement on the side (nothing fancy), you’ll get out of debt.

It won’t be easy. It won’t be fast. But it can be done.

Your only other option if you’re really tight on cash, is to simply make more money.


Easier said than done, right?

Given today’s economic climate, maybe. But I am not so sure it’s impossible.

The key is that you just have to be willing to do what no one else wants to do.

Like pick up garbage, shovel snow, clean homes, drive trucks, run heavy machinery, work night shifts… you name it.

Really, crappy jobs that if given the choice, you would avoid doing.

I know a guy that makes $150,000+ a year cleaning stores at night.

His shift starts at midnight and he begins by clearing the aisles in big supermarkets for example, and rides on a really tough waxing machine to clean up the old wax left behind and lay down a fresh seal so that when customers come in the morning, it’s shiny new.

It’s a nasty, hot, long, tiring job.

It’s dirty, it smells, and there are tons of chemicals you have to use constantly. Not only that, your whole body ACHES at the end of 6 hours of straight cleaning.

You’ve gotta do the job fast because they lock you in the store for 6-8 hours while you complete the job and the manager will come in the morning to let you out.

This is done to make sure that you don’t rob them blind while they’re sleeping, and clean their clock while under the guise of waxing.

So if you’re done early, you gotta stay in there until they let you out. If you’re done later, they either fire you or they make you come in and be locked in earlier.

Sucks, huh? But it makes the money you may need.

Another job that pays a lot and (to me, sucks), is truck driving.

Go to truck driving school, pay for it out of your pocket and when you can drive a semi, you can spend hours and hours inside a big truck constantly driving on the road.

No fresh food at truck stops. Mostly unhealthy, fast food options, long hours (4 hours with nary a break in between), overnight driving in the dark, having to meet deadlines to be there on time for unloading in the morning.

It’s stressful.

But it makes what you need, because truck drivers can pull in anywhere from $90,000 – $150,000 a year since they pay you by the mile/kilometre.


If I could, I would. But I can’t, because each of your situations are unique to you as an individual and you have different priorities in life.

See, what I’m trying get at here, is that these are all options you’ve got to make in life and you have to step up to the plate and understand what you want.

The best you can do is read the above, start thinking about changing your life and rationalize your decisions by deciding in what priority you need to put these three things in:

  • Save for emergencies/in general
  • Save for retirement
  • Pay off debt

If you’re on the younger side with more years left before retirement, then you can put Retirement at #3.

If you’re older and you are getting panicky because you’re nearing retirement, then retirement should be a higher priority for you.

So cut back on your expenses, re-assess what you can possibly put away without endangering your life or your bills (no eating cat food please), and with that hard number of $500 a month, allocate that $500 to your different priorities and stick to it.

No one, single strategy works for everyone.

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.