Today the focus is on you. You’ll work on adapting to your emergency by identifying a money strategy you can work on that will help you mend your finances now so you can thrive later on.

By working on things like an emergency fund or debt paydown, you’ll be able to lessen the depth of the hole of a future emergency so that climbing out the next time is a faster, smoother process.

Choose Your Strategy

Below, you’ll see two common strategies that can be used to rebuild finances. Each option has its own set of pros that make it attractive, and it’s likely you won’t be able to work on both options at the same time. Consider each option below and decide which one works best for you and any budgeting partners that you’re working with now. Remember, for Josh and Ashley, they chose to focus on building an emergency fund because they had spent their small amount of savings, and because the interest rate on their car was pretty low. You might choose to do the same, or you might choose to focus on paying down debt. Here are the options laid out a bit more clearly:

Option 1: Build an emergency fund

When you have an emergency fund that can cover at least 3-6 months of expenses, you’re able to:

• Cover expenses and/or maintain your lifestyle in the event of a future emergency.
• Avoid taking on more debt
• Have more peace of mind

Option 2: Pay down debt

Paying down debt is a great financial goal. When debt is paid off, you’re able to:

• Spend less of your monthly budget on debt payments
• Save money by paying less interest over time
• Avoid the risk of repossession or foreclosure because of unpaid loan installments
• Experience less stress

In both cases, you’ll need to re-work your budget so that you can add space for the option you choose. Spend some time thinking about which option makes most sense for you. If you’re budgeting with a partner, make sure they’re included in this conversation. Once you decide, you can move on the following steps.

Helpful Tip: You can use Goodbudget to help you pay down debt with the Snowball Method.

Adjust Your Budget to Include Your New Strategy

Josh and Ashley needed to make further changes to their budget so that they could focus some of their income on building their emergency fund. Without those changes, it wouldn’t have been possible for them to save on a monthly basis.

As you think about changes you can make to your budget so that you have space for your new goal, consider creating a 50/30/20 budget. In that framework, 50% of your budget goes towards your needs, 30% towards wants, and the final 20% towards savings or debt paydown. Budgets that follow this structure automatically have buffers built into them. When an emergency strikes, it’s easy to strip down to a lean budget by cutting out the wants and savings. And, it’s quick work to add those things back in when you’re back on track.

Go ahead and think about the changes you can make so that you can work on building a fund or paying down debt. You can see how to update your Envelopes if you’re using Goodbudget. Don’t feel discouraged if you can only put a little aside. Even the seemingly smallest amount puts you that much closer to paying off your credit card or saving up your target emergency fund amount.

Helpful tip: If you receive a financial gift or other windfall at any point in the future, you’ll know you can use that for debt paydown or to stash in your emergency fund.

Then, when it comes time to grow out of your lean budget because you’re past the emergency, you’ll be able to think about making your goal a top priority in your budget.