Need to make a decision between saving for an emergency or paying off debt? It's an undoubtedly difficult choice, but prioritising the establishment of an Emergency Fund is of utmost importance for your long-term financial well-being. Here's why: Picture a scenario where you are burdened with €20,000 of debt and have no savings. Instead of solely focusing on repaying the debt, it is wiser to initiate savings while simultaneously making additional payments towards the debt whenever possible. By adopting this approach, unforeseen expenses will no longer exacerbate your financial stress.

Making the creation of an Emergency Fund your primary goal in managing your personal finances is crucial. Strive to accumulate savings that amount to at least 3-6 months' worth of expenses or perhaps even more if it brings you a greater sense of security. Begin by saving an additional €100 each month, and by the end of the year, you will have €1,200, a sum capable of covering a month's expenses for many individuals. Gradually gaining momentum month after month will hasten the attainment of that three-month fund more swiftly than you may anticipate.

Now, let us address the common grievance of having no money left to save at the end of each month. Adhere to the principle of "pay yourself first". Allocate the minimum required amount towards your debts every month and concentrate on identifying your "Latte Factor" – those unnecessary routine expenses that can be eliminated. By implementing these measures, you will witness a substantial impact on your financial situation. Remember, even if it is just €10, every amount saved represents a step in the right direction. The habit of saving is what truly matters.

Prioritising debt repayment above the creation of an Emergency Fund can lead to adverse consequences. Unexpected expenses can arise and if you have directed all your surplus funds towards debt, you may find yourself in a precarious situation. Always reserve a portion of your additional funds for your savings, enabling you to shield yourself from life's unexpected surprises.

Establishing an Emergency Fund provides you with a safety net to navigate through the unforeseen challenges that life throws our way. While debt can be gradually repaid over time, one-off costs cannot be easily managed without reserves. So, commence the process of building your emergency fund and attain peace of mind, knowing that you possess a financial cushion to rely on when you most need it.

Luca Caruana is a Certified Money Coach (CMC®) and founder of the Money Coaching Hub. He empowers people to achieve financial goals and transforms big dreams into reality. For ‘The Malta Independent’ he focuses on the practical aspect of personal finances, giving useful tips to build your wealth and enhance your relationship with money