Emergency Funds: An Update on our Finances

I’m a list girl. I love making them, I love crossing things off, and I love the structure that it gives me for reaching my goals. I have even been known to write things down after I’ve already accomplished, just to feel the satisfaction of crossing it off. (Come on, I know I’m not the only one who does that – anyone else?)

I think that’s why of all the financial gurus out there, Dave Ramsey’s financial system resonated the most with me. I don’t agree with everything he says (for example, I use credit cards for perks), but really appreciated that he gives 7 clear steps I can cross off on my way to financial freedom.

Here are the Baby Steps that Dave gives:

  1. $1,000 to start an Emergency Fund
  2. Pay off all debt using the Debt Snowball
  3. 3 to 6 months of expenses in savings
  4. Invest 15% of household income into Roth IRAs and pre-tax retirement
  5. College funding for children
  6. Pay off home early
  7. Build wealth and give!

I know it’s not kosher to talk money with people you know (hi friends and family who read this blog!), but I don’t really care anymore. J and I are happily on Step #3. I say happily because it can (and has) taken people years to get out of Step #2. (Hello? Remember the first two years of this blog?) But once you are debt free, it’s amazing how the dollars you used to allocate to pay off loans or car payments (or weddings!) are now transferred to savings!

For me and J, we’re striving to save $10,000 in an Emergency Fund (and are really stinking close to that goal!). It is unlikely that both of us will lose both our jobs at the same time, so we think $10,000 will be enough for now to cover any major emergencies. Eventually we will increase that amount when we have a house or kids, since there are a lot more potentially emergencies that can happen with more assets (and yes, I’m calling children an asset:).

After our (phase 1) emergency fund is complete, then all of our saving efforts will go to saving for a house down payment and investing in our retirement accounts. It is certainly a buyer’s market out there and we’re getting antsy as we continue to waste away our dollars in rent. We certainly don’t want to rush into buying a house, and there are a thousand of things to factor into that decision, but we want to make some sacrifices to save as much as we can to get into a house sooner rather than later. I’m not sure what kind of timing that may entail, but if we can be in a house in two years then I’ll be pretty satisfied. But who knows? We may not even be in Raleigh in two years.

So that’s where we are! What about you? Which Baby Step are you on? What is your magic Emergency Fund savings number? Is it 3 to 6 months of your paycheck amount? Or is it 3 to 6 months of the bare minimum expenses?

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  • I’m not really sure what our goal is for an EF… We’re at just under $3K right now, but $10K would be awesome although it’ll take us years to get there…

  • We are kind of splitting steps 1 and 2. We are working on our emergency fund, which is split up into smaller funds, and we are also paying off debt at a higher rate of speed than minimum payments.

  • I think it SHOULD be kosher to talk to friends and family about money. Good for you being brave enough to start changing that culture. Managing money well is one of the most important things in life, so why do we all shy away from discussing it with the ones we love? It doesn’t make sense! We are also on #3- sure do love that Dave Ramsey. :)

  • I’m working on step 3. I’d like my emergency savings to be $12,000, but I’m a freelancer so I have slower months so it’s important that I make sure I’m really covered, plus I only have myself to rely on.

  • I was in the middle of Step 1, but then I left my job and now I am not even close to anything on the list. Except #0…find a job. :) I am currently freelancing, but I just started so It is hard to know what is coming in. I am praying and hoping for the day I rise, but I am sure working towards it.

  • Still in Step Two – the long, long, process of dealing with Step Two. But, against Ramsey’s advice, I’m also doing Step Three (at the rate of $100/month). I’m not totally sure what the job market will be like when I graduate, so I want to account for that.

  • I’m kind of all over the place.. I have a $2100 EF right now and am paying off debt. I invest more than 15% and don’t have kids or a home.

    I’d love to get to a $10K EF! That’s a big goal of mine once my student loans are paid off.

  • Find your blog through a link a few months ago…so I totally feel like a blog-stalker now. Yay you for being on Step 3!

    We are on step 4/6. We have (more than) 15% going into the retirement and are paying extra on our house. We are expecting our first child in October–so we will have to dial back 4/6 and start on 5 then. Our emergency fund has 6 months of bare minimum living expenses in it, but we will probably have to examine it soon to see if “6 months pre-kid” is “at least 3 months post-kid.” I’m a Dave Ramsey fanatic–my husband and I went through the class 3 times (including one time teaching and one time assisting another teacher).

  • i have a 10k EF – i liked it because it was a nice even number and at the time (a couple years ago) it represented approx 6 months of living expenses. i should probably take another look at it to make sure it is still in line with my current budget.

    i’d say i’m on step #4 – i contribute to a ROTH IRA and ROTH 401k but i don’t think i’m at the full 15%…it’s close though!

  • I’m on step 3 also! My goal is 12 months bare minimum expenses by the time I graduate so I have some flexibility in choosing jobs.

  • We’re on step six in a sense, as we are paying extra on our mortgage, put about 15% into retirement, have a big 10 month efund of bare bones expenses and don’t have kids (yet). But we decided not to pay off all of our non-mortgage debt. My husband’s roughly 20k student loan is at about 1% fixed interest rate and did not make sense to pay off. We feel we’re better off using our cash for other reasons. But I have never followed Dave Ramsey’s advice exactly. (A $1000 starter efund never seemed big enough to me!) But I think it comes down to the personal aspect of personal finance.