I'm an artist who makes $80K/year — but major home repairs have depleted my emergency savings. Should I pause my retirement contributions to rebuild my emergency fund?

Aside from saving for retirement, one of the best things you can do with your money is build an emergency fund. Life happens, and a designated stash of cash can come in handy when you’re suddenly hit with a major car repair or a medical emergency.

Take Kerry, for example. Kerry, a self-employed artist that earns roughly $80,000 a year, was wise enough to create an emergency fund. But thanks to a major home repair that wound up being quite costly, her emergency fund is down to $1,000.

Having experienced the benefit of emergency savings first hand, Kerry knows she needs to rebuild her savings before another potential bump in the road puts her in debt. With this in mind, Kerry is left wondering if she should pause her retirement contributions to rebuild the emergency fund.

To figure out what’s best for Kerry, let's get into the numbers.

Arguments for and against pausing retirement contributions

First things first, pausing contributions to your retirement savings is generally a bad idea for most people, especially if you have an employer that matches contributions to an RRSP account.

Since Kerry is self-employed, she doesn’t get that matching contribution, so she wouldn’t be giving up as much if she were to pause retirement contributions for a while. She would, however, be losing out on the tax breaks that she would receive from contributing to her retirement accounts, as well as the compound interest that the invested money would earn.

Pausing her retirement contributions, even for a short period, could make a significant difference in Kerry's retirement nest egg.

At the same time, since she’s self-employed and may face a greater risk of financial problems without emergency savings, there's a solid argument to be made that Kerry should pause her retirement contributions while she shores up her emergency fund. Otherwise, she could risk going deep into debt if she doesn’t have the money to take care of another major emergency expense.

So, what should Kerry do? One option is to temporarily pause retirement contributions and save up for a mini-emergency fund, then begin splitting her extra money between retirement investments and emergency savings until the latter fund is back to where it should be.

This could be a good approach as she could give herself an financial cushion to fall back on and wouldn't have to pause retirement contributions for too long, allowing her to slowly build up both her retirement and emergency accounts at the same time.

But if Kerry prefers to maintain her retirement contributions while rebuilding her emergency fund, she’s got to get serious about saving.

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Shoring up emergency funds without putting retirement at risk

Unfortunately for Kerry, the cash that she tries to save for her emergency fund is going to have to compete with her living expenses. This makes reallocating her money a little harder to do, but that doesn’t mean it can’t be done.

In order to rebuild her emergency fund, Kerry should keep an eye out for any potential options to save some money or boost her income. Here are a few ideas to help Kerry with stashing some cash away for emergencies.

• Budgeting: The first thing Kerry should do is establish a budget that accounts for all of her necessities, while also allowing her to put some money away for her emergency fund. Creating this budget, however, may require a few sacrifices.
• Cut down on spending: As mentioned above, Kerry may have to make some changes in order to save money for her emergency fund. Making meals at home, reducing electricity use, taking advantage of public transportation and cancelling pricey streaming subscriptions are all ways that she can cut down on spending.
• Consider working a side gig: Sometimes cutting down on spending to save money is easier said than done. If Kerry finds this to be true, picking up some extra work on the side could be the solution. Driving for a rideshare service, delivering packages and pet sitting for neighbors are all decent side hustles that could allow Kerry to save some money without sacrificing anything from her personal life and set her own working schedule.
• Sell used items: This could be a good way for Kerry to boost her income and save some money. Depending on what she has that she’s willing to part with, selling used items could fetch a decent return that Kerry could then put straight into her emergency fund.
• Save your windfalls: Putting away cash that lands on her lap, such as a cash birthday gift or tax return, is another good way for Kerry to add to her emergency fund.

In the end, it's up to Kerry to figure out what works best for her, but the good news is she has a few options to explore.