When I blogged about our goal for 2012, we started out by saying we were going through Dave Ramsey’s Financial Peace University.
From that, we learned the 7 baby steps. Getting out of debt (all except for our house) was only step 2. We have a long way to go. :-)
So what’s next? Naturally, step 3, which is a fully funded emergency fund. Dave recommends is 3-6 months of expenses.
I wanted to lay some ground work for this step.
First, we will be going for an entire 6 months of expenses for our emergency fund. We felt that with the feast or famine nature of a small business, it would be better if we had 6 months.
Secondly, I will not be posting exact dollar amounts when I report on progress for this step. We felt it was a little to personal of financial information to have out there in the world, letting everyone basically know what our monthly income averages. Instead, I will be reporting using percentages, with 100% fully funded being the obvious finish line for this step.
Third (and you might get mad at us for this one), our first progress report on this step is…
We are now at 50% of our goal.
Say what!? Ok, here’s why. Baby step 1 is a $1,000 emergency fund. From the get-go (prior to our even being married) my husband has been a super saver. When, in our second year of marriage, we talked about starting the baby steps, we decided that it was ok to continue to hold the 3 months of emergency fund aside that he already had in savings and to not put it toward debt at that time like Dave says.
A few things influenced this decision.
1. The potential extreme swings of income with a small business. We did not feel at all comfortable with such a small emergency fund.
2. Part of the reason Dave says $1,000 is for motivational purposes. If the emergency fund goal in step 1 is too big, people will become discouraged while saving for that first amount and give up. Since we already had the money, this wasn’t an issue.
3. Dave really wants to put a fire under people. There can be a little bit of panic in the idea that you only have $1,000. He likes people to use that panic to their advantage and start hustling on step 2 so they can finish and get back to saving. We knew ourselves well enough and trusted that we would not have an issue hustling.
4. In situation of overwhelming amounts of debt, taking a large chunk of change out of savings and throwing at debt can be a tremendous leap forward, helping people start the process with great momentum. Before we started in January of 2012, we had an incredible Q4 of 2011. We had a great boost of momentum without raiding the emergency fund. And for our total amount of debt, it would have had only a small impact on the timeline and reduction of interest we paid.
There you go. Our intent was not to be dishonest. And with the last 22 months in the rear-view mirror we know there were a few moments where we really thought even our “Crisis Fund” would be used up and we’d have to dip into the emergency fund. Not blogging about the emergency fund helped me keep it out of sight, out of mind, so that we would continue to hustle.
We are thankful that we gave ourselves some grace, and modified the Baby Steps from the start.