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:
- $1,000 to start an Emergency Fund
- Pay off all debt using the Debt Snowball
- 3 to 6 months of expenses in savings
- Invest 15% of household income into Roth IRAs and pre-tax retirement
- College funding for children
- Pay off home early
- 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?