Baby Step 1: Saving for an Emergency Fund

It’s no secret, I am a big Dave Ramsey fan. I’ve decided to talk about his game plan to become debt free.  Dave has seven steps to financial freedom. It’s a journey that I am currently on that I believe will benefit my family and I encourage you to look into it for yours.


Dave calls the steps baby steps toward financial freedom. Before a baby learns to walk fully, there are small tentative steps they take before they begin walking. These are the steps you take before gaining financial freedom.

THE 7 BABY STEPS

Step 1: Save $1,000 for your starter emergency fund.

Step 2: Pay off all debt (except for the house) using the debt snowball.

Step 3: Save 3-6 months of expenses in a fully funded emergency fund.

Step 4: Invest 15% of your household income in retirement.

Step 5: Save for your children’s college fund.

Step 6: Pay off your home early.

Step 7: Build wealth and give.

In the upcoming months I will talk about each step. This month, I will talk about the importance of having an emergency fund.

If you think about the last year, how often have you had an unexpected expense crop up that you weren’t anticipating? I call these unexpected events, ankle biters. It could be a car problem, a dental emergency, an unexpected visit to the emergency room or doctor, or anything you basically weren’t expecting to happen. So after you have created a budget, try to allot money to save each month until you reach a $1,000.

The purpose of the emergency fund is to have money available so that when these emergencies occur you are prepared for them. You should budget and try to save this emergency fund, prior to paying off all debt. It’s important that you don’t skip a step. You don’t want to find yourself reaching for or applying for credit cards or loans to pay for these unexpected expenses. These unexpected expenses can derail a debt reduction plan if you’re not prepared for them.

The next thing you want to do on baby step one is to ensure that this money is not easily accessible. You want to either create a separate account for it, or place it in an area that is not easily available to you. Please be aware that you shouldn’t place the money in an IRA or any account that will be hard to withdraw the money from. You want it available, but not easily accessible if you know what I mean. The last thing you want to do is to have it in your wallet and spend it on purchases that don’t amount to emergencies. Which leads to my next point. You want to ensure that you identify what is an emergency ahead of time. Using the money to buy Christmas gifts, for babysitting funds, or to buy a designer purse are examples of what NOT to use the funds for. The important thing to remember is to leave it alone!


So in a nutshell, what you’re going to do is make a budget, work your budget, and when you have an emergency that may force you off your budget, use your emergency fund (sparingly). Finally budget to save the thousand dollars again to replenish your emergency fund.
By: Natricia Edwards

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