An emergency fund is there to help you weather an unexpected financial storm without going into debt.
As for how much you should have saved in it, most experts would say to keep three to six months’ worth of living expenses. But if you’re starting from scratch, financial expert Dave Ramsey says it’s OK to have less.
Here’s what Ramsey has to say about the amount you should have in your emergency fund.
Start Small: Aim for $1,000
One of Ramsey’s signature teachings is his “7 Baby Steps,” which provide guidelines for getting out of debt and taking control of your money. Baby Step 1 is to save $1,000 in a starter emergency fund.
“In this first step, your goal is to save $1,000 as fast as you can,” Ramsey states on his site. “Your emergency fund will cover those unexpected life events you can’t plan for. And there are plenty of them. You don’t want to dig a deeper hole while you’re trying to work your way out of debt!”
However, it’s important to note that this is meant to serve as a bare-bones emergency fund for those who are currently working to get out of debt. You ideally should have more.
“A thousand dollars was never designed to be enough,” Ramsey said during a taping of “The Ramsey Show Live” in April. “It’s enough to buy an alternator for a car or a tire — maybe one or two. It’s enough to take your kid to the pediatrician if they’re sick, but it’s not enough to be a real emergency fund. It’s enough to keep the little things from kicking your butt off the get-out-of-debt wagon. … If you have something big happen, it’s not enough.”
Build Your Way Up to 3-6 Months’ Worth of Living Expenses
During an August 2021 episode of “The Ramsey Show,” Ramsey said if you’re no longer paying off debt you should aim to have three to six months’ worth of living expenses saved in an emergency fund, but where in that range you save is up to you. He noted that, ironically, the more money you have, the less you need to have saved for emergencies.
“When you’re broke and you’re just getting started, everything is an emergency because you’re broke,” he said. “You’re driving junk cars and you haven’t done all the maintenance on the house so even more stuff’s breaking, and so the fact that you’re broke is inviting more strain on the emergency fund.”
When you have more wiggle room in your budget, you’re more likely to nip many issues in the bud that could get more costly if left unchecked.
“Later on when you’ve got more money, the air conditioner is getting serviced regularly on the house,” Ramsey said, “and, as soon as there’s one little thing on the roof, you fix it immediately, and it doesn’t leak and create a bigger mess. And you’re driving decent cars so they’re not breaking down. And you don’t wait until there’s a flat tire; you happen to notice when they’re getting a little bare and you go change them out early. When you’re broke, you have to drive them until they blow.
“What happens is you get more margins in all these areas of your life,” he continued. “The weird thing is: The more money you get, the less need of an emergency fund you have because there’s fewer emergencies.”
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