Emergency!There are two camps to the emergency savings issue. Camp A tells you to immediately pay off your debts and let credit be your emergency cushion until you can start saving money to cover 3 months expenses. Camp B encourages you to put away 3 months living expenses as you slowly pay off your debts. Some say Camp A’s advice is risky and potentially costly, and others say Camp B’s choice is costlier in the long run.

It’s funny timing for me to be writing about emergency savings because I’ve just been fired from my job. Trust me, I’m happy about being freed from my unreasonable employer of questionable ethics and even more questionable employment practices. I went down only because I asserted my boundaries, and I’m confident I’ll find work elsewhere.

My personal experience doesn’t make me recommend one camp’s advice over the other, however. I support Camp A because of circumstances I have working for me. On the other hand, Camp B might be the entirely better choice for someone else. The truth is, an emergency can happen tomorrow, so why not structure your emergency savings plan that way? The following chart will help you examine your financial picture and determine if Camp A or Camp B is best for you.

Camp A vs. Camp B Chart

The camp with 3 or more traits that accurately describes your financial situation is probably the best emergency saving plan for you.

Camp A: Debt Reducer Camp B: Savings Builder
– Earnings can cover necessities like rent or mortgage if debt payments are lowered – Expenses and debt payments typically exceed earnings
– Low or 0% interest debt – High minimum payments and high interest debt
– Sufficient credit line to cover expenses during emergency period – Near credit limits
– Partner or family member can assist with money during emergency period – Household or family cash flow stretched thin
– Greater economic opportunity in region – Strained economic opportunity in region

I’ve painted a picture that suggests the person with the higher debt load and strained finances should find some way to significantly cut expenses or increase income to utilize Camp B’s advice for putting money away in case of emergency. The rationale being: you can use your savings when emergency hits because other sources of money are limited or non-existent.

My critics will tell me that me that following Camp A advice is neither good for an emergency that requires cash, nor for a long-term or multiple emergencies. My response to that is 1) I can use my low interest “credit checks” from my credit card company for cash advances or for non-credit card payments. 2) I worked hard to reduce my debt and improve my finances. I have to go a long way down before my finances are in trouble again. I’m pretty motivated to find employment soon and keep my finances healthy. If for some reason another financial emergency comes up, yes, I will be in trouble, but thankfully I have a partner and family that can assist me.

The main point I’d like to drive home is the fluidity in these camps. Someone following Camp B advice might want to switch over to paying down debts more aggressively as their credit significantly improves. Conversely, someone following Camp A advice might want to start saving money after an emergency period until they’re on firmer ground again.

I don’t really believe one plan works best for someone all the time. As financial conditions change, so should your emergency savings plan.

Now that I’ll be out of a job, I’ll be significantly cutting back on my debt payments, as well all my other expenses. Thankfully my aggressive debt reduction strategy got me to the point of having to only pay back 0% interest debt. I’ll be okay making credit card payments and covering rent with unemployment checks. But let my story be a warning for you: If I didn’t have credit card debt in the first place, I would have been saving money for an emergency much sooner.

What are your thoughts and experiences with building your emergency savings plan? What worked best for you?