As you know, we have been following Dave Ramsey’s Total Money Makeover and baby steps to get ourselves out of debt. While we don’t have a large amount, we still weren’t comfortable with the total amount that we did have. Yes, I said did have because we only have one thing on our list left. Student loans. Well, that and the house, but the house isn’t included in Baby Step 2. So after talking with different friends, I was being asked the same questions over and over. Of course it led to this blog post!
I am going to break down the list of questions that one friend sent into several posts, because I feel like a lot of the information will need time to be absorbed. Plus, it might get pretty redundant and you can always skip around to questions you want answered!
Do you really feel like the emergency fund is necessary?
First let me explain “emergency fund”. According to Dave Ramsey, you should start your journey with a baby emergency fund of $1000. This is for when Murphy’s Law comes knocking, and you have an unexpected issue (think, leaking water pipe, blown tire, doctor bill). The baby emergency fund is actually baby step #1, a fully funded emergency fund with 3-6 months of expenses (or more) comes later. It is so incredibly important to have this in place. Whether you stash the cash in a sock, or in a savings account, please do this!
Right before we started our journey, at the end of September 2009, we had a plumbing issue. We had gone on vacation, and on the last day, got a call from our neighbor and the city. The city had come out to inspect a leak that they detected, and upon doing so, moved our meter from the house to the curb (fancy technology, I suppose). When they did this, they replaced a valve or something at the curb. This was on “their side”, so their responsibility. However, when they turned the water back on, the new meter kept on going. This meant a leak, and it was on our side. We came home to no running water (we had them turn it back on though, willing to deal with a larger then normal bill) and called the plumbers. A few long days later, we had to borrow (aka take out a loan) to the tune of $2200 to replace the entire water line from the street to our house. Ouch. If we would have been following Ramsey already, we would have used our $1000 emergency fund for part of that. Yes, we would immediately work on refilling that emergency fund, but the blow to our wallets and self-esteem would have been much less.
When we had our car accident in December, the car was totaled. We were a month into our debt-free journey, and maybe half way to a full emergency fund. It was moments like that, when our world was knocked around the playing field, the emergency fund was 100% needed and necessary to succeed and beat debt!
In my next post, I will talk about spousal support, and why you should (or shouldn’t) be on the same page when it comes to getting debt free!
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Wow. You know Murphy personally! But keep working the plan and someday you will look back at the water incident and laugh, or at least have a great story to tell at parties.
Thanks for the great blogpost. These are the types of things people really want to read.
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