Baby Step One – Starter Emergency Fund

 Today I’m launching a new series. Actually it is the very first installment of what I envision as an ambitious 3 series set in which I plan to cover some personal finance basics from different angles.  Call it a “Back to the Basics” bundle if you will.  I expect this series to take shape over the next couple months so stay tuned.  I hope you’ll enjoy and engage the discussion.

In some ways it’s curious that I waited so long to offer up a series on Dave Ramsey’s Baby Steps.  I suppose too, in other ways, it is obvious.  While originally inspired by Dave Ramsey, this site has hopefully developed a voice of its own.  Not deviant from Ramsey’s mission as much as unique in its own. 

In that way, if my first articles out of the gate did not include a true Baby Step breakdown – though it did  pay homage here and here – then it is no surprise that it would take some time to revisit those grounds. 

But better late than never I guess… here goes:

The first series is a breakdown – my breakdown – of Dave Ramsey’s Baby Steps and to kick off this series we’ll start at the most logical place, Step One.

Baby Step 1 – $1000 Emergency Fund

It is temptingly easy to out think the room on this one. Rebuttals interestingly enough come from dueling interpretations of the same question – Why?

  • Why is it a full one thousand dollars?
  • Why only one grand?

Is it simple genius when your naysayers are so evenly divided into opposing camp?  Opposing not just your plan but also each other?  Me thinks so.

Let’s take each question in turn as a means of supporting this launch point.

Why is it a full one thousand dollars?

The lyrical refrain on this complaint typically follows… I’m trying to get out of debt here and $1000 can go a long way towards that end.

True.  A grand is a good start and might actually help knock out some of your smaller debts.  But the trick about being in a hole is to learn to stop digging.  Without some reserve your only option when the air conditioner, car, washer, hot water heater, dryer, stove, or whatever else breaks down – and it will – is to turn to debt to bail you out.

With $1000 on standby, you can let cash – your cash – bail you out.

The lesson here is subtle but profound.  You start to learn; start to teach yourself; that YOU are your bailout and not some silly plastic card.


Why only one grand?

The dueling banjo then asks why isn’t the reserve even more?  The reasonable question in response is “are you expecting an emergency?”.  Is the wife pregnant, are there layoffs at the plant, is there a specific and known emergency lurking just beyond the bend.  If so, then the Baby Steps are not for you.  You’re in an emergency now and need to stash cash towards that end.

If that’s not the case, and in most instances it is not.  Then the slight nervousness you feel is now called your motivation.  You want to shed your debt with a quickness.  You want to recognize your debt for what it really is – RISK.  Reducing debt equates to reducing risk.

Sitting on a pile of cash next to a hole of debt represents a failure in connecting your financial dots.  By experiencing that tinge of concern as you start to fill that hole from your pile, you are actually activating something deep with you.  You’ll want to fill the hole faster and you’ll appreciate that the next time you’re sitting on a pile of cash, it’ll really be your cash.

And so between the differing objections is the perfect middle ground.  $1000 represents an amount better than most nagging household “emergencies” but is not enough to keep the world at bay for any significant length of time.  Rather, it is quick and it is temporary and it is Baby Step One.


Stay tuned for upcoming installments in this series:

Baby Step 2 – Pay-Off Debt Smallest Balance to Largest Using the Debt Snowball

Baby Step 3 – Boost the Emergency Fund to 3-6 Months of Household Expenses

Baby Step 4 – 15% Earnings Invested for Retirement

Baby Step 5 – Start Savings for Your Child’s College Education (as applicable)

Baby Step 6 – Pay-Off the House

Baby Step 7 – Save, Invest, and Get Rich


Many other skilled and talented writers have dedicated time to dissecting Dave Ramsey’s Baby Steps and I want to share their work for your review as well.  While I certainly hope you’ve enjoyed my treatment of the material, I’m confident you’ll round out your understanding and insights by also spending time with the interpretations of others.

Read, Enjoy, Comment, Subscribe!

Bible Money Matters – step 1 

Enemy of Debt – step 1

 Gather Little By Little – step 1

 No Credit Needed – step 1

 Dave Ramsey – step 1


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