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Should I Build an Emergency Fund Before Paying Off Debt? · Becoming Financially Confident

• 0:37
  Every extra dollar you have seems to come with a decision.
• 0:41
  Do I save it for emergencies or do I throw it at your debt?
• 0:45
  And whichever one you choose feels like you're neglecting the other one.
• 0:48
  So today, let's settle the debate and let's build a plan that actually gives you peace.
• 0:53
  And this is a question that keeps a lot of people stuck.
• 0:56
  And honestly, the answer isn't an extreme as most people think.
• 1:00
  So stay with me today and let's build the route foundation for from the beginning.
• 1:14
  Hello and welcome to Financially Confident Christian.
• 1:16
  I'm your guide.
• 1:17
  I'm Ralph Estep Jr.
• 1:18
  I call myself the financial evangelist.
• 1:20
  And today we're going to talk about one of the most common financial questions that I receive, and that is, Ralph, do I save first or do I pay off debt first?
• 1:30
  And can I afford to do both?
• 1:32
  And I understand the question.
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  When every dollar you get has somewhere to go, that wrong decision often feels expensive.
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  And you're not alone in answering that question.
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  So I'm going to have the answer today.
• 1:43
  But if you've got a question for this show, this show is fueled by your questions.
• 1:47
  You can reach me at financiallyconfidentchristian.com/question We'll put a link in the show notes, but again, that's financially confidentchristian.com/question Well, let's get right to today's listener question.
• 2:01
  Listener writes this.
• 2:02
  Hi, Ralph.
• 2:03
  I've been trying to get serious about my finances this year, but I keep running into one question that nobody seems to agree on.
• 2:10
  Some people tell me I shouldn't save a penny until every debt is gone because the interest is costing me money.
• 2:16
  Others tell me I need a full emergency fund before I even think about paying off debt.
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  Right now I've got about $9,000 in credit card debt and only about $600 in savings.
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  Whenever I get extra money, I just freeze because I don't know which direction is actually the smart one.
• 2:33
  I'm tired of feeling like every decision is the wrong decision.
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  What would you recommend?
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  Thank you for all you do.
• 2:40
  Well, you're welcome for all I do.
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  That's why I have such a passion for this.
• 2:44
  And thank you for sending in your question.
• 2:45
  It is a tough thing because you're, you're faced with this fork in the road and you're trying to decide, do I put the money on the debt or do I put the money in my savings account?
• 2:55
  But I want to start by saying something bold.
• 2:57
  This isn't an either or decision.
• 3:00
  It's about putting your money in the right order.
• 3:02
  So let's walk through how to build that order on today's show.
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  Here's the first thing I'm going to encourage you to do.
• 3:08
  You said you had $600 in savings.
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  I think you need to work a little bit on building a small safety net first.
• 3:15
  And the reason I say that is right now, every surprise becomes another credit card charge.
• 3:21
  And if you continue to live in that cycle of surprise charge, surprise charge, what's going to happen is that debt's never going to come to an end.
• 3:30
  But if you have that small emergency fund, it can change everything.
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  Now you might be thinking, oh, great, Ralph's going to tell me I need three to six months of emergency money.
• 3:39
  That's not what I'm saying today.
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  I think you need to set a goal of about $1,000.
• 3:44
  You said you had 600, so you got to put it out another $400.
• 3:48
  So what I would do right away is build that savings goal to about $1,000.
• 3:53
  That's going to cover most emergencies.
• 3:55
  And that doesn't have to be your forever emergency fund, but it's a place to start.
• 3:59
  It's what I'm going to call your financial airbag.
• 4:02
  You don't need to build a fortress before attacking debt, but you need to have a safety net.
• 4:07
  So once you've built that safety net, then I want you to pivot to attack the high interest debt aggressively.
• 4:13
  The things people are telling you are true.
• 4:15
  The interest is continuing to grow.
• 4:17
  But once you've got that starter fund in place, focus extra money on that high interest debt.
• 4:23
  The thing that people don't understand is that credit card interest just steals your future income because you could be making payments on it every month.
• 4:30
  But if the interest rates.
• 4:31
  And listen, right now the average interest rates are in the 20s.
• 4:35
  So every balance you eliminate gives you more freedom.
• 4:38
  And once you start to build that freedom, you start to build momentum.
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  So stay consistent instead of chasing perfection and work on paying that down.
• 4:47
  Interest is working every day against you.
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  Your payoff plan should be working like that, too.
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  Now, one thing I want to mention here, a little caveat to this.
• 4:56
  Don't stop saving forever.
• 4:58
  I don't want you to think, well, Ralph, what you said is once I get to that thousand dollars set aside, I can just stop.
• 5:04
  No, once you get rid of that expensive debt, then you got to shift back to savings.
• 5:09
  And then I want you to actually build that three to six months of expenses.
• 5:13
  That really is the goal of what we want to get to.
• 5:16
  Because the truth is what I've seen working with people over 30 years, this becomes real financial stability.
• 5:23
  And when you have real financial stability, you live in a place of financial peace.
• 5:28
  Those emergencies stop becoming financial disasters and, and you don't find yourself in the same position where you're worried about that $9,000 credit card.
• 5:37
  You can get to a place where peace will replace the panic.
• 5:41
  Debt.
• 5:41
  Freedom gives you room to build lasting security.
• 5:45
  But you also have to change the mindset here.
• 5:47
  You've got this all or nothing mindset.
• 5:50
  You have to understand that financial progress isn't perfect.
• 5:54
  You're going to have setbacks.
• 5:57
  Life is going to change.
• 5:58
  It's going to require some adjustments as you go.
• 6:00
  You can't let one setback erase months of good decision.
• 6:05
  It's kind of like a diet.
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  You know, I've been on this, this diet journey and there are days when I make bad decisions and I feel like, you know, why am I doing this?
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  But I keep moving forward.
• 6:14
  That next day I get right back on it.
• 6:16
  You're going to have the same thing.
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  That small progress on the debt, on changing your financial dynamic is going to compound over time.
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  And trust me, progress beats perfection every single time.
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  But the other thing you got to remember is this.
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  Remember your goal.
• 6:35
  It's real easy to say, oh, my goal is to pay off debt.
• 6:39
  But for most people, that's not the goal.
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  That's one of the things you have to get to to get to the goal.
• 6:45
  I really believe most people's goal is financial freedom.
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  And just picture that right now.
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  Just take a second and picture what that looks like for you.
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  Once you get to financial freedom, you'll have the ability to be more generous.
• 6:59
  Freedom creates options.
• 7:01
  Freedom reduces that stress and it strengthens families.
• 7:04
  We talk about how debt breaks families down.
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  Well, financial freedom just gives them a resurrection.
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  Every wise financial decision you make is really a huge investment in your future freedom.
• 7:18
  Now I want to go a little deeper, friend.
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  I hear the pressure you're carrying in your question because you said it out loud.
• 7:24
  Every decision feels like it has huge consequences.
• 7:28
  And our faith doesn't remove the need for wise planning at the same time.
• 7:32
  But what faith does is it reminds us that wisdom and trust can actually work together.
• 7:39
  But faith doesn't promise us that we're not going to have emergencies.
• 7:42
  Those things are going to happen even if you have the best laid plans.
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  And it doesn't promise us that if we're faithful that debt is going to disappear overnight.
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  It doesn't.
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  And it doesn't promise that we're not going to have difficult seasons.
• 7:58
  I've had difficult seasons.
• 8:00
  If you're listening to my voice, Are you watching me right now?
• 8:03
  You're going to have difficult seasons, too.
• 8:05
  But here's what faith does promise us.
• 8:08
  God promises us wisdom when we ask him for that wisdom.
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  And as you seek him and you steward what he's entrusted to you, here's the best part.
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  He walks with you every single step.
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  Don't forget, God calls us to wisdom.
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  Being prepared isn't living in fear.
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  Saving isn't a lack of faith.
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  And paying your debt isn't a lack of trust.
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  Both of those things are stewardship at work.
• 8:37
  Friend, you don't have to choose between trusting God and making wise financial decisions.
• 8:42
  Biblical stewardship embraces both at the same time.
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  So hear me on this.
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  Hear me loud and clear.
• 8:49
  You're not behind today.
• 8:50
  You're building.
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  You're giving every dollar a purpose.
• 8:55
  And that's how financial confidence grows.
• 8:58
  And that's how you actually get to financial freedom.
• 9:01
  So here's your win for today.
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  I want you to decide on your starter emergency fund goal.
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  Like we talked about today, it depends on your situation.
• 9:09
  Maybe $1,000.
• 9:11
  Go check your savings balance, choose your target, and then I'm going to encourage you to automate a weekly transfer.
• 9:17
  And once that's funded, once you've got to that goal, then start redirecting those dollars towards debt.
• 9:23
  But reframe your mind.
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  Those small wins create lasting momentum.
• 9:28
  Let's go to our Bible verse today.
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  It comes to us from the book of Proverbs, chapter 21, verse 20.
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  It says the wise have wealth and luxury, but full spend whatever they get.
• 9:40
  Now, that one's a little harsh, but what is it telling us?
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  What is the word telling us today?
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  It tells us that wise people prepare.
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  It tells us that saving is biblical wisdom.
• 9:51
  So if you really want to find financial confidence, it grows through stewardship.
• 9:56
  It grows through planning ahead and living in those consistent habits.
• 10:01
  Well, how about we pray together right now?
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  Heavenly Father, I just want to thank you for caring about everything, every part of our lives, including our finances.
• 10:09
  Lord, give us wisdom to know when to save.
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  And, Lord, give us wisdom to know when to pay down our debts.
• 10:16
  Help us to become faithful stewards of every dollar you've entrusted to us right now.
• 10:21
  Lord, I ask that you would replace fear with confidence and replace that confusion, Lord, with true clarity.
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  Teach us to prepare wisely while trusting you completely, Lord.
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  And may our financial decisions honor you, Lord, and bless the people you've placed in our lives.
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  And we ask this in Jesus name.
• 10:41
  Amen.
• 10:42
  Well friend, I hope you've learned something today.
• 10:44
  Today isn't that either or decision?
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  So start with that small emergency fund, attack that high interest debt and return to long term savings, stay consistent and trust God through every single step.
• 10:57
  So again build that starter emergency fund, focus on that high interest debt, expand that savings, stay consistent and steward every dollar with purpose because I know you can accomplish this.
• 11:09
  And if you're struggling with something financial or maybe you've got a trip or a tick of how we can do it better, I'd love to hear from you.
• 11:16
  You can go to financiallyconfidentchristian.com/voicemail we'll put a link in the show notes but again that's financiallyconfidentchristian.com/voicemail I just want to thank you so much for joining me today.
• 11:29
  Thank you for giving me your time.
• 11:30
  I want to encourage you to stay financially savvy.
• 11:33
  May God bless you and you have a great day.