I agree with some of the commenters that a bigger emergency fund should be your first priority. $1000 is a start, but not enough.

I also agree with Kristine that building a well-stocked pantry of food, first aid and household supplies is very important. In fact, you can do both at one time: An extra few months’ worth of food stored in your pantry IS an emergency fund, besides being a tremendous convenience and money-saver (buy products in bulk when they’re on deep discount sales) and helping avoid the impulse to buy take-out or eat out because “there’s nothing in the house and I’m too tired to go grocery shopping.”

Without the emergency fund in place, if something comes up and you don’t have the money to pay for it you’ll resort to credit cards again and you don’t want that to happen.

Once you establish a solid fund you can begin to fund retirement. You’ll be on more solid ground. I agree with Bill above in that you’ve lived without this money so use it now to build up the emergency fund.

Best of luck!

Remember, true financial recovery is a balance of saving, investing and spending wisely.

The hint was to make a list of all your annual and semi-annual bills, add the annual total up, divide by 12, and put that much away in a savings account each month. In the early years we were making $50 a week, with home & meat provided, and would have a 500 gal tank of propane gas come due all at once. OUCH!!!! This took a little while to get started, but I have never looked back. It is a sort of emergency fund, in that you have the money immediately available when car insurance, health insurance, AAA, and other bills come due. In fact, the amount grew nicely and I was often able to use it for unexpected expenses and not feel the pinch.

I absolutely love being debt free, paying off the sometime large cc bills each month, being able to have some fun, etc. I wish more people had this option.

May I respectfully suggest swapping Phases I and II? Without an emergency fund, you’ll go into debt; that debt will charge you more in interest than your retirement will pay you. Once your emergency fund is adequate, then you can save for retirement. As Bill (1st comment) wisely stated, keep making those payments…you’re used to living without that money, that’s what will create your emergency fund.

Now you’re on your way to being LIQUID: having enough to meet your obligations and an adequate emergency fund. The rest goes to retirement.

Planning to live within your net income & not getting back into the debt cycle includes budgeting for infrequent but recurring costs (car registration, property taxes, repairs, major gift-giving occasions, payment of insurance deductibles/copays, etc.) & saving up for short-term goals as well as saving for long term goals. I agree with Trent that now is the time to beef up your emergency fund.