Baby Step 1: Setting up a beginner emergency fund is the first action plan to financial freedom, at least according to Dave Ramsey. This baby emergency fund, usually $500-$1,000, is a small amount that is to be put aside for emergencies.
For many, this seems impossible. Maybe you can’t get even get caught up on your bills! How are you supposed to find extra to build up your savings?
If you are in this camp, you might want to check out my post “How To Budget When You Are Behind on Bills.” This will hopefully help you figure out a plan to get caught up so you can start saving and get the ball rolling.
Fortunately for us, a small savings account was one thing that was really important to my husband and I from the start. When we were first engaged, we squirreled away every extra dime we could until we had enough for one month’s worth of bills. We knew we wanted this money in savings before we got married so we would be ready for the unexpected. Whatever it looked like.
Our total savings was more than the beginner emergency fund of $1,000 that Dave Ramsey recommends. Well, that was easy. Baby Step 1? Check! Or so I thought….
Then, I read his book The Total Money Makeover. For anyone that already has this book, you know that he recommends that in Baby Step 1, you save $1,000 and ONLY $1,000. (If you haven’t read his book, seriously go buy his book. Right now! It is less than fifteen bucks, and it helped us pay off over $80,000 of debt.)
What about those who already have that saved, you ask? He advises his readers to withdraw anything over that $1,000 threshold and put it towards their debt.
Insert my not-so-mild panic attack. For real, though!
All those hard-earned dollars? All those months of scrimping and saving? He wants me to take it away? Noooo. My precious.
Granted, he says in his book that most people who apply his principles will be debt free in 6-18 months. So having that huge jumpstart would make sense. If you know it would take you about a year to pay things off, you would quickly build your savings right back up.
I will say, if you have a short time frame before you would pay off your debt (like less than two years) I wholeheartedly agree that this will help.
But we were in D-E-B-T. Like deeeeeeeeep in debt. Holy student loan payments that matched our mortgage kind of debt. We knew it would take years to pay everything off, and neither one of us felt comfortable draining our account to $1,000. We felt like the extra money wouldn’t put a drop in the bucket anyways.
In the end, we decided to err on the side of caution and kept our (barely) inflated savings as it was. Did we ever really tap into it? No. Could we have brought it down to $1,000 and been fine? Yep. Hindsight is always 20/20, they say.
I do feel like I need to insert the fact that we didn’t really have a ton in savings anyways. Yes, it was more than 1K. But it was literally enough for one month’s worth of bills. That’s all. Taking the extra out would have sped up our debt payoff by all of two months.
The extra two months tagged onto the time spent paying off debt instead was an even compromise for us. The peace of mind just knowing we had a little extra cushion was worth bending his rule a little bit.
If we had tens of thousands of dollars in savings, we would have taken a bulk of it out to get that debt snowball rolling. But we didn’t.
As much as I sing Dave Ramsey’s praises – which I do and omg he legit changed my life – YOU are the one paying off your own debt. If you are all gung-ho about it and know you will knock it out quickly, go for it! Use your savings to propel you forward even more.
But if you know it is going to take a lot longer than the average family (ahem, I’m right there with ya!) and the thought of letting go of your savings freaks you out, just don’t do it. Or take out only half, or another amount that you’re comfortable with.
At the end of the day, you have to do what works for you. Especially if you’re losing sleep over it at night! You should find a balance between doing what makes you comfortable and what will have the most benefit for you long-term.
What is one thing that is holding you back from Baby Step 1? If you’ve already done Baby Step 1, do you have any tips for newbies who are just starting out?
P.S. Would you like a little help to organize your finances? The Simple Finance Toolkit is filled with free printables that will help you set financial goals, outline a budget every month, and track your progress. And it’s free to my readers! Simply enter your email in the little box below and I’ll send you a link to download your freebies today!