Perhaps you’ve read the book, The Total Money Makeover by Dave Ramsey. In it you’ll find that Dave has you start your total money makeover with $1,000 saved in the bank. For some of you that might seem like a lot of money. But for most of us, I’d argue it takes very little time to save up $1,000 if we put our minds to it. Why does Dave suggest such a small baby step? Our Experience With Baby Step 1 When we started our Total Money Makeover, this was the easiest of the baby steps. We simply moved $1,000 into a new fund we entitled “Emergency Fund Only” and decided that cash in the safe was the best physical action we could do. It was in an envelope, sealed with tape, put into a box, taped again, and thrown in the back of the safe. But even though it was the easiest of the 7 Baby Steps for us, I believe it was the most important. Yes, more important than our larger emergency fund. And yes, even more important than paying off our non-morgage debt. Why? Here are two reasons I think that Dave Ramsey’s $1,000 starter emergency fund is so vitally important. Reason 1: It gets you started on a track toward financial success. By simply taking this first step, you are committing to yourself and your family that you are going to work towards accomplishing all the other steps. You’ve heard it said that sometimes the hardest part of a project is beginning, and that’s so true. It’s not the $1,000 that’s difficult. It’s the idea that you are going to continue after you’ve completed your starter emergency fund and: Build your fully funded emergency fund . Pay off all your debt: mortgage and all. Build wealth with investments and give like nobody else! Reason 2: It helps you feel a sense of urgency or security as you pay off your debt. When you start your Total Money Makeover, you’re in one of two boats. Either you have a large chunk of money stored for random expenses and emergencies, or you are living paycheck to paycheck trying to get by. If you’re in the first boat with lots of money, it might make you feel insecure to throw the majority of your savings toward your debt and only keep $1,000 for your emergency fund. If that’s the case, starting on this plan will help you feel a sense of urgency to pay off your debt quickly so you can get to baby step 3 and fully build your emergency fund. If you’re in the second boat and are living paycheck to paycheck trying to get by, having $1,000 in the bank will help you put more money towards your debt . . . you’ll trust that if you make a mistake you have that $1,000 cushion to break your fall. Starting and Rekindling Your Total Money Makeover Perhaps this is the first time that you have ever encountered Dave Ramsey’s baby steps. You can read my full review of Dave Ramsey’s methodology if you want to get started! Or perhaps you’re a huge Dave Ramsey fan and you’re looking to rekindle some of his principles in your life. One thing I highly recommend is that you take Financial Peace University . It’ll help you remember some important foundational financial concepts and teach you some new things you’ve never encountered! My wife and I are halfway through Financial Peace University and I can tell you from what I’ve seen so far it is far worth the price. The investment advice and insurance recommendations are two areas where we needed work. I think you’ll find that you too need some work in certain areas. What do you think of $1,000 as a starter emergency fund? If you don’t like Dave’s baby steps, what’s your plan? Photo by Refracted Moments™ Related Articles: Juggling The Baby Steps: What Next? 3 Steps to Strengthen Your Emergency Fund From Fruition to Tuition | FPU Review #10 What’s Your Financial Transformation Story? The Great Misunderstanding | FPU Review #13 Dave Ramsey’s 7 Baby Steps Defined John Frainee is a personal ﬁnance writer at TheChristianDollar.com . His goal is to provide biblical ﬁnancial principles that encourage people to live healthier lives. Beyond personal ﬁnance, John enjoys spending time with his wife and two crazy cats, playing a competitive game of Monopoly, and reading just about anything he can get his hands on. You can also ﬁnd him on Twitter and Facebook . The articles on this site are for entertainment purposes and should not be taken as financial advice. Please contact a financial professional for specific advice regarding your situation. Also, many of the CPF articles help us pay the bills by using affiliate relationships with Amazon, Google, eBay and others. Find out more here .
Dave Ramsey’s $1,000 Starter Emergency Fund: Why It’s So Important