Why You Should Save A $1000 Baby Emergency Fund
I have given a brief overview of the Dave Ramsey baby steps in my post about How I Paid off $45,000 in debt in 17 months. The first step, or Baby Step 1, is saving $1000 as a baby emergency fund.
For some people this will be a harder step than others. For some people like us, you may already have a $1000 saved and can just move on to baby step 2. For others it will take some work with the budget and some sacrifices.
The first step is to put together a written zero-based budget. This is considered step 0. Once you have a budget, it may take a couple of months to really get it going smoothly. Especially if you have never done a budget before.
Once you have your budget together, you work on saving a $1000 baby emergency fund. Most people have Baby Step 1 completed in a month or two.
Keep Murphy Away
The baby emergency fund is only a small emergency fund to help keep Murphy away while you focus on paying off debt as fast as you can. This isn’t going to solve every problem that comes up. If something major does come up, it will help some and then add the rest to the debt snowball.
A $1000 is not going to solve all of life’s problems that come up BUT it will help keep a lot of them away while you pay off debt. Most “emergencies” aren’t really emergencies. They should be planned expenses that a lot of people don’t think about or plan for. Once you put your budget together, you need to plan for a lot of things that before would have been “emergencies” for you.
Emergencies or Unplanned Expenses
Your car registration is not an emergency in the sense that you should have planned for it. A flat tire could be an emergency IF you don’t have a vehicle repair fund started. A car wreck and having to pay your deductible is an emergency. Now, once you work the plan, most emergencies won’t feel like emergencies because you have a plan to pay for them!
I will let you in on a little secret. You will get a flat tire at some point. Your car battery will die at some point. You will have to do home repairs if you own your home. You have to buy new tires every couple of years. These things should be planned for so they don’t throw your entire plan off-balance.
A lot of people stress and freak out over a lot of “unexpected” expenses but once you know you have money for it, it’s just an inconvenience and not an emergency.
Now once you are working on paying off debt, some of these things you won’t be saving for unless you know you will have to address them while you are paying the debt off. For example, if you know you need a new roof in 5 years but you will be debt free in 2, don’t save for that now. However, if you know you need a new roof in a year and won’t be debt free for 2, then save as much as you can for that now. Hopefully, you won’t have to add much to your debt.
Save it up Fast
I have written several posts about saving money fast. The main tips are selling everything that you can think of and cut out non-essential.
Here are some of my posts on saving money quickly:
There are lots of other ways to save money depending on the topic. You can downgrade plans, adjust the thermostat, do your own maintenance, and many many other things to save money.
What step are you on? Do you have your starter emergency fund already?