If you’ve ever heard of Dave Ramsey’s Seven Baby Steps, you know he advises every family to have a fully funded emergency fund. This is something that should be a top financial priority as soon as you pay off your debt.
Using Dave’s principles has completely changed the way we manage our money, and I highly recommend his book The Total Money Makeover. It is a great read for anyone who needs a little motivation to get serious about their finances. And he offers a step by step process to get there.
The first step is to save about $1,000 in case an emergency comes up. The second step is to pay off all of your debt with the debt snowball. You can click here if you want more information on Dave’s debt snowball method. This is something I can personally vouch for!
Last year, my family finally paid off our last loan. Using Dave’s teachings, we paid off over $80,000 and are finally working on the third step, building up our fully funded emergency fund. We decided to save six months worth of expenses in case the unthinkable happens.
Life is not a guarantee. We could get in a terrible accident, get really sick, or lose a job. I hate to be Debbie Downer, but at some point you will need to tap into this fund.
Have you ever had a family member pass away and wondered where the money was going to come from to buy your plane ticket? I have.
Have you ever had a child hospitalized and later opened your mail to see an astronomical bill just waiting to be paid? I have.
Have you ever had a car fail inspection until you spent a gazillion dollars on repairs? I have.
These are very normal things that happen in life. Unexpected, yes, but still very possible.
Without an emergency fund, these unexpected expenses would have added stress upon stress to my life. My already overworked brain would have had one more thing to think about. And it would have been one more burden added to our family and my marriage.
But having the resources already at my disposal to cover these expenses was the biggest blessing! We were able to avoid adding extra anxiety to an already stressful situation.
Dave recommends that you save about 3-6 months worth of expenses. (Click here if you are interested in seeing how much is enough for you to save.) Like I said, we decided to go with 6 months. We are pretty much a one income family right now, so the extra savings just adds to my peace of mind.
One other thing that is important to note: You are only saving your monthly expenses, not your monthly income. If you make $3,000 a month, you don’t necessarily have to save that. You only need to save how much you need for survival each month. Enough to cover your basic bills. Bare minimum.
If you lost your job or for some other reason needed to live off of your emergency fund for a few months, you would already cut out all of the extras, like fancy cable packages and monthly mani-pedis.
Figure out how much you absolutely need to live off of and save that! For example, if you look at your bare bones bills, maybe your essential expenses are $2,000. You would then save $6,000 for a three month fund, or up to $12,000 for a 6 month fund.
Once I realized this, it didn’t seem so intimidating! I mean, it still seemed like a lot of money when we first started. But now that we having been saving for a few months, we are a good ways to our goal number. And I’m really glad we started when we did. I wish we had started even earlier, but I’m encouraged at the progress we have made so far.
If you want to build up your own emergency fund, first figure out how much money you need to cover your basic bills each month. Then, decide how many months worth of expenses you want to save. Finally, get started!
Start today. I promise in a few years you will be so grateful you didn’t wait even longer!
How much are you planning on saving for your fully funded emergency fund? What will your savings allow you to be more comfortable with in life?
You can read post 1 of the Blogging Through the Baby Steps series right here. Baby Step 1 – Our Beginner Emergency Fund
You can read post 2 of the Blogging Through the Baby Steps series right here. Baby Step 2 – Our Successful Debt Snowball