So Baby Step 1 is to give us some cushion as we focus on Baby Step 2 and get out of debt. I will get to the Debt Snowball in later videos but, once we are debt free, including everything except a mortgage we may have, then we go on to Baby Step 3 and fill that Emergency Fund with 3 to 6 months worth of expenses. This is needed, “I cannot live without it,” expenses. This amount does not need to include things like a cell phone plan or that special cafe latte thing you drink every morning. I know we think those are needs, but they’re not. They are luxuries, and when the bottom falls out in life, we can live without them just fine. This number is different than a monthly budget because it is the bare minimum we would need in order to survive if, God forbid something major, like losing our job, ever happens.
An important note is that this fund must be kept liquid. That means it goes into a separate savings account that you can access at any moment. I want to emphasize it must be in a separate account than where you normally pay your monthly bills out of because, if you mix the two, your emergency fund will disappear. Mr Ramsey says, “You need it off to the side where you won’t accidentally dip into it, but where you can get the money without any headaches, or having to depend on banking hours.” (p12)
Please note: this is not an investment account, although you are investing in your peace of mind! He says, “Your emergency fund is there for your protection, not to make you money.” (p13) He knows that putting a big chunk of money aside, and not seeing much interest on those hard earned bucks, can make some people nervous but he explains, “…the emergency fund is not an investment; it’s insurance – and insurance costs you money.” (p13)
One last thing about this all important Emergency Fund, don’t be afraid to use if it you are really in an emergency! Some people work so hard to gather that amount that, when something happens, they get all depressed about having to use it. But that is what it is there for. So if your car breaks down, and the mechanic hands you a $1000 bill, just pay it. See the freedom? If you really need to use the funds, stop any other Baby Step you happen to be on, and re-fund that Emergency Fund to the level it was before you had to dip into it. So for example, if you had that first Baby Step of $1000 tucked away and started Baby Step two to get out of debt, but needed to use some of the saved money, stop whatever extra money you are adding to the Debt Snowball and put those funds back into Baby Step 1. Remember for real success, we must follow each step, one at a time. Once that $1000 is back, continue on eliminating that debt.
If you ever have any questions about any of this, please know I am available and more than happy to answer any questions. Contact me in the link below.
2023’s Got A Minute? Book Club
January: The First & Best Book Ever: The Bible
February: Love Is In the Air: “The 5 Love Languages: The Secret to Love That Lasts” by Gary Chapman
March: Spring Growth: “Secrets of the Vine” by Bruce Wilkinson
April: Living the Resurrected Life: “The Wonderful Spirit Filled Life” by Dr Charles Stanley
May: My Spiritual Mom: “Making Good Habits Breaking Bad Habits” by Joyce Meyer
June: Spiritual Dad: “It’s Not About Me- Rescue from the Life We Thought Would Make Us Happy” by Max Lucado
July: Financial Freedom “Complete Guide to Money” by Dave Ramsey
<>< Peace, Diane
