Managing Money God’s Way

It has been a few days since I last posted.  That is because I am on vacation with my family at the beach for a few days, but I wanted to continue with my series on Dave Ramsey’s 7 Baby Steps.  Here are the steps we have covered so far:

• Step 1 – Emergency Fund – When It Rains It Pours
• Step 2 – Pay off all debt using the Debt Snowball Method

Baby step 3 build upon the emergency fund you established in baby step 1 and takes it to the next level.  In this step you are building a fully funded emergency fund of 3-6 months of living expenses.  The reason for so much money?  With this reserve you are building a safety net against major life events so that you do not have to go into debt again.

Once you have 3-6 months of expenses saved there are not very many things that can happen that you can’t pay cash for outright.  Lose your job, unplanned surgery, your emergency fund should have enough money in it to cover these expenses.

Why Bother To Build An Emergency Fund?

Many people think that this step is a big waste to build an emergency fund that is so large.  Why not use the money for something better?  I personally can think of a few reasons why this is a good idea.

1. Stuff Happens:  You will have things come up that are most unexpected and I think it is better to have planned for them than to just stick your head in the sand like an ostrich.  You will be glad that you have enough money to pay cash instead of having to whip out the old credit card and go further into debt.
2. Stress Management:  When you have an emergency fund saved, life is a lot less stressful.  You will not have to wonder how you are going to pay for something unexpected, you have the cash available to you.
3. Risk Is Reduced:  When you have an emergency fund, along with the proper insurance(s) you have a lot less risk of having a bad situation turn worse.  You manage the risk that comes along with those big negative events, and stop them from turning into life changers.

How Much Is Enough?

That decision lies with you and your family.  The amount may vary based upon your living situation, number of children, job stability and other factors.  Dave Ramsey speaks of a baseline of 3-6 months of expenses.  So if your family has a minimum of $3000 in expenses every month after getting rid of all the un-necessary bills, your 3-6 months of expenses would be between $9000 and $18,000.

Where Should I Put My 3-6 Months Of Savings?

Where you save your emergency fund is really up to you, but I would say you need to make sure that you can get to it right away if you need to.  My personal preference, and where we have our emergency fund is in a high-yield savings account at ING Direct.  Whatever you decide, DO NOT put your emergency savings into things like real estate, or the stock market that could be tied up for a while.  KEEP IT LIQUID!

So, my question to you is this:  Do you think saving up 3 to 6 months of expenses is enough?  To much?  Let’s discuss.