Dave Ramsey’s Baby Steps: Step 3 – Three to Six Months Emergency Fund

by Derek Clark

my damaged car
Creative Commons License photo credit: pathwithpaws
Great news, if you’ve made it to this step you are debt free. Next you have to save up for emergencies. Life happens and you need to have a safety net. The third baby step is a 3 to 6 month emergency fund. This step builds on the $1000 emergency fund from step 1.

Right now we have 9.7% unemployment in America. There are a lot of people that have faced emergencies recently, and many of them weren’t prepared. If you have a 6 month cushion, losing your job doesn’t have to be a crisis.

This needs to be put in a safe place. Many people, including myself, would have a tendency to want to put the money in stocks or mutual funds to try and get a better return than just putting it in the bank. This is not the point of this money though. It is a safety net. The point of a safety net is that you don’t want to use it, but it has to be there when you need it. For couples, guys might not understand this. Girls need the security of an emergency fund, and it needs to be in something safe. You don’t have to understand it guys, you just have to do it.

Having an emergency fund is freedom. It means you don’t have to worry about your job as much and it could give you a chance to try something new if you want to. Without it you are stuck working paycheck to paycheck just to make ends meet. That isn’t how it should be, and it doesn’t have to stay that way for you.

Step 1: $1000 Emergency Fund
Step 2: Get out of Debt
Step 3: 3-6 Months Emergency Fund
Step 4: Start Saving 15% for Retirement
Step 5: Save for Kid’s College
Step 6: Pay off the Mortgage as Fast as You Can
Step 7: Give, Save, Spend!


youngandthrifty March 25, 2010 at 11:51 pm

Good post- and great idea.

I should start a new bank account with an emergency fund, I guess I’m treating my savings account as an emergency fund right now, and I really shouldn’t..
This day and age, with the economy being so fragile, we really should have that fund just in case…

Derek Clark March 26, 2010 at 7:08 am

Yeah, at this point I feel like I want an emergency fund that would last even longer than 6 months. I’d like to think that would be overkill, but you never know.

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