Sunday, March 28, 2010

Dave Ramsey's Baby Step One (more than just $1000 baby emergency fund)

Baby step number one in the Dave Ramsey plan is more than just a $1000. A lot of people don't realize that, but it is.

Baby step zero is getting current on everything.

Baby step one, is $1000 plus a written budget, cut up credit cards, and a commitment to being gazelle intense with getting out of debt. If you don't have all those, then don't lower your emergency fund down to $1000!

There's more to it too, if you have special family issues.... say health issues, job problems, pregnancy, or anything like that, then you need more than $1000 emergency fund.

The $1000 fund is also not a fund to cover life events. Kids out growing clothes, car repair etc. As Dave sarcastically says, "Who could see that happening!" We've all got cars that needs maintenance. So put it in the budget. Some of us have kids that are outgrowing clothes faster than we can put them on them, so budget for it.

$1000 isn't a lot. In fact, a lot of ridicule against the Dave Ramsey plan is that $1000 won't cover much. That's right, it won't. So be gazelle intense and get to your fully funded emergency fund (FFEF)as quickly as possible. Be proactive. If you can see the tires are going bald, that means you need to save up money to fix them. If you think that you or your spouse might lose your job, then you need to stop the debt snowball, go to paying minimums on everything and then start saving for the potential storm.

Being on Dave's plan is being pro-active with your life. Looking ahead, and thinking about your money.

Special notes about the Baby Emergency Fund:

1. If you make under $20,000 a year Dave says to have a $500 beginner fund.
2. Keep it liquid.
3. With your spouse, decide what an emergency is in your family.
4. Don't touch the Baby emergency fund (BEF) unless it is a true emergency.
5. If you have to use your emergency fund, then you need to go back and refill it asap.
6. Page 142 of the Total Money Makeover (3rd Edition) says, "I don't suggest you clean out your savings if everyone isn't having a Total Money Makeover. I also don't suggest you clean out your savings if you are planning to be on Baby Step Two (Start the Debt Snowball) for five years."

He also emphasis that most people take 18 to 24 months to get out of debt. if your plan looks like it will take longer, DON'T DESPAIR. The more you focus on getting out of debt the sooner it will be done. You can do this!

1 comment:

  1. Oh, yes, and add to the "special family issues" owning a house that's not worth the mortgage payoff and you cannot afford to live in it and you have to beef up your EF to pay the entire mortgage payment yourself while looking for new renters.
    That would require a larger Emergency Fund, it surely would!