“This might be too personal a question, I’m not sure but how much do you like to keep in your savings account/emergency fund? I know Dave Ramsey says $1000, but even though we have debt, that doesn’t seem like enough to me and makes me nervous.” ~ Sue
Not at all too personal of a question, Sue. In fact, Hubs and I recently just discussed this. The short answer would be to have as much as possible. Keep reading for the long answer!
I wholeheartedly agree with you that Dave Ramsey’s recommendation of $1,000 for a baby emergency fund is not enough. I’ve often wondered why Dave hasn’t increased this amount. I guess that if he were to do so, the very first step of the plan might scare a lot of people away. Depending on what site you read, a vast number of people (in all age brackets) don’t even have this amount in savings, and furthermore, they couldn’t quickly come up with the cash if they immediately needed to do so. Recommending $1,000 is a more achievable amount than let’s say $5,000. I think it is also a way to encourage changing poor spending habits.
Hubs and I have gone back and forth with “how much is the perfect number” ever since we committed to getting out of debt. Since starting on our journey some 15 months ago, we’ve had a lot of curve balls thrown our way. While some might just chalk it up to “that’s the way life goes,” it has put our security glands into overdrive. In other words, it has made us realize how just how vulnerable our financial situation is. These curve balls are also why I give the short answer of wanting to have as much as possible!
So how much do we currently have? Our main savings recently hit the $5,000 mark (and some change), and we also have a miserly savings account (more on this later) which has a smidge under $100. Additionally, we roll over what we don’t spend each month from our envelope system. If the need were to arise, would I take what we have saved in the clothing envelope to keep the lights on? You bet I would! I am also trying to get our envelope system a month ahead. I currently have April’s fully funded and am now saving to cover May’s. Our primary savings will be taking a hit with the upcoming car expense, but I’m hoping to replace some of it with the last check of the month.
As of right now, Hubs and I don’t have a cap on how much we want to keep saving. We currently have a transfer of $75/week from checking into savings on autopilot. We also try and add a little extra here and there above that $75/week. I’d like to say that our security glands will eventually settle down as we continue paying off more debt, but at this point, I doubt that will happen! I think the primary reason (at least for me) is our mortgage. While I still think the refi was a good thing, I still get nervous about the size of the payment. The mortgage is also why I like seeing debts with higher minimum payments (such as the medical bill) paid off!
I should add that I am no financial expert, so please don’t take the advice from someone who has repeatedly done stupid with zeros! There are so many things that can factor into how much a baby emergency fund should be. Those with young kids would likely need more than someone with kids. Someone renting might not need as much as a homeowner. You get the drift. We all have different circumstances and equally as import, different comfort levels.
Sue, I hope this answers your question. If you or anyone else has a question, please don’t hesitate to ask-preferably via a comment as I’m lousy about checking my blog email account and I’ll do my best to answer.
I’ll share our emergency fund amount in case it helps anyone. We have $1000 set aside for unforeseen emergencies. We don’t touch it unless we NEED to. The last time we used it was seven months ago when our water heater died, and we had to pay about $600 for a new one. We built the fund back up again over the next few months. The biggest emergency we ever had was a $1500 car repair, but that big of an unforeseen expense only happened once in 30 years, so I think $1000 is enough for us.
You’ve been very fortunate! I think what scared us the most was Hubs needing to be off for an entire month. Thanks for sharing your numbers and what has worked for you.
I would think $1500-$2500 should cover most emergencies, like a repair or replace an appliance. $1000 doesn’t seem quite enough, especially considering what a car repair can cost these days.
OneFamily recently posted…Yesterday – the picture edition
I agree with you, especially with facing a $1500+ repair later this week.
I think I will be happy with $3000.00 in the emergency savings. Right now while paying off debt we have $1000.00. I know this is not enough. We have had many more emergencies over the past several years that have been much larger than this. But $3000.00 even though it could not cover say a new furnace, could certainly help offset some trauma.
I can’t help but wonder if those of us who have experienced more emergencies feel a greater need to keep more in savings?
I think it might have to do with the type/number of emergencies you have experienced. For me, I think $5000 is where I would feel safe – we have about $3100 in savings right now with another $1000 in various Cap 360 categories. About 10 years ago dh got laid of without ANY notice which completely threw us for a loop and we were NOT prepared and had to live off of our retirement savings. Now we are playing catch up with retirement, trying to pay off debt, and trying to live a normal life…..I think we are doing well, but the debt really bothers me – ok, it scares the hell out of me and I want it GONE FOR GOOD.. I feel like we shouldn’t have that much in savings when it could pay off one of the credit cards, but I just don’t think I would feel comfortable with less – what does everyone else think? .
I’m right there with you, Sue. Our debt scares the hell out of me, too! If keeping more in savings give you peace of mind, keep it there. Peace of mind is worth something, too!
I think everyone agrees there should be SOME kind of emergency savings. I don’t think the exact number matters as long as it’s practical and allows you to sleep at night, or like Lucy says, an amount that gives you peach of mind. After reading the comments, Dear Husband and I seem to be the ones with the lowest number at $1000 for emergency savings, so what would we do if we were were faced with a $3000 problem? We’d pay it by doing something like this:
$1000 depleting the emergency fund
$500 from NOT paying extra toward debt that month
$1000 by suspending retirement savings for that month
$100 from literally eating beans and rice for a couple of weeks
$400 from not paying extra toward debt the following month
If we had to write a check for the $3000 emergency, we have a cushion in the bank account that we pretend isn’t there. (It IS there because the bank will charge us a fee if the account drops below a certain amount.) So, it’s okay that the $400 has to come from the following month, because a check wouldn’t bounce.
If we had to use a credit card to pay for the $3000 emergency, we’d have enough by the following month to pay the credit card in full.
Obviously, we’re not doing the Dave Ramsey steps in strict order because we are older with our retirement years just around the corner. We are saving a little toward retirement while paying off our Baby Step 2 debt.
You have a plan, and that is what matters!
Hubs and I don’t agree 100% with everything Dave Ramsey says (we also still contribute to our retirement) but as long as we are working towards getting out of debt and avoiding taking on new debt, I feel we are on the right road.
I think you are doing just fine, Priscilla!
We are doing this as well, if we waited until all the debt was paid off it would be time for dh to retire and we would be sorely lacking in our retirement account. Could the money we put in retirement every month go toward debt – absolutely, but if we don’t start bringing our account back up to where it was, we are in BIGGER trouble than credit card debt!!! I could just kick myself for us getting back into credit card debt….but we can’t look back, can only do better in the future, right?
We are in the same boat. We simply do not have the time to put saving for our retirement on hold. We are also kicking ourselves, but at least we are finally doing something about it!
Sue, that’s kind of how I would do it too. I’d pull from other areas, and even use my emergency only credit card if I had to and then pay it off the next month.
OneFamily recently posted…Yesterday – the picture edition
oops! I mean to say Priscilla!
OneFamily recently posted…Yesterday – the picture edition
We were faced with this when Hubs needed an entire month off. There are times you just do what you need to do in order to survive.
I have struggled with this one, but I try to keep a minimum of $5,000 in my emergency fund and would like to increase to $10,000. We have a really old house with old water heaters and appliances 10+ years old so I’m trying to make sure I have money in my account for those items. I’m also in Sue’s position trying to play catch up. We’ve got a ways to go.
In my experience, when these types of things start to go, it can be a domino effect. With your savings goal, you would be well prepared. We are also in a similar position with our retirement savings which makes paying off all debt (including the mortgage) even more imperative.
When we were doing Ramsey’s plan, we started with the $1000 and it worked to start our behavior change. As time went on, we saved a little more, maybe up to $5k or so, while doing the baby steps. Now that we are out of debt (aside from the mortgage) we get nervous when we have under 9 months EF in cash, and 12 between cash and taxable investments… that amount does NOT include sinking funds we keep for things we know are coming. We had a major emergency last year that almost wiped our EF out – but we’ve been lucky and blessed to be able to build it back quickly.. This has not been easy road, I cheer and applaud everyone following the steps – they work! That said, staying the course post debt payoff isn’t easy either… lifestyle creep, and lacking the sense of urgency of debt make it hard not to fall off the wagon sometimes!
How long have you been out of debt? That’s FANTASTIC!!! I definitely have a hard time keeping strong with the debt payoff – any secrets for what worked for you?
I agree! Testimonies like Daybyday are so encouraging! We will be there too someday!
Good for you in succeeding! This is so awesome! Would you care to share a little more of your journey…amt of debt and length of time it took you to accomplish your goal, etc?
I’d have to look back (not that I want to exactly lol) but we started with over $70k in non-mortgage debt. I was literally hooked to a detailed spreadsheet all the time, tracked every penny and only used the cash envelopes. I credit a coworker who gave me a tattered copy of the total money makeover after another coworker had given it to him!!! A true blessing and a good friend!!!….. it took us about four or five years to finally dig out…during that time we moved and lost a ton of money on a home, had a second child, and any number of other minor crisis. We are quite blessed as I was able to spend all my now not spending – free time working and managed a few promotions, and my sig. other stayed home for childcare but always had a side gig or two. We found TONS of free things to do to go out on dates, keep the kids entertained, etc. We’ve managed lots of vacations by camping and bringing our own food!! I swear the two biggest things are I bring my lunch every day, and we bring our food on every long sports day, road trip, etc. … and for a while there i stopped buying clothes (my vice). Home decor was all DIY, we had crappy furniture for years and have done our lifetime limit of wallpaper scraping, painting, mowing, etc (but still DIY most of it even now). What worked was honestly following the plan in the book to the letter, planning ahead for each paycheck, and not complaining too often :). Now I need to get back to it to pay off this huge mortgage, so thats why i still read all the blogs. … maybe now I’ll get inspired again myself!!
That is fantastic!!! I have a hard time not falling into the “poor little me” mode when I want something (right now it is an instapot…..) and eating out is probably my biggest vice but I “justify it to myself by saying things like “I don’t drink, I don’t smoke, it is ok to do this – I DESERVE some fun”…..what I am learning is we DESERVE to have a stress-free retirement and eating a hamburger out isn’t going to help that one little bit!!
I agree, Sue. I loved reading the success story! As for deserving an instapot…I don’t drink or smoke either and I really want an air fryer! I’ll get one, but only when our baby step 2 debt is paid off!
Thank you for taking the time to go back to this dark time in your life. It is so inspiring to hear how the hard work and sacrifices paid off for you. That coworker blessed you so much for sharing the book. Changed your life forever! Are you by any chance blogging your journey or would you consider blogging about your push to pay off your mortgage? I know there are many of us here who will be at that point (hopefully very soon!) and it would be great to have a “team effort” and continue encouraging each other to keep on going! This is one of several reasons I blog and also like to read how others are doing it.
Sorry, I should add that we also kept contributing to the 401k during this, just to the match limit though. I don’t agree wtih Dave on that one 🙂
Thank you for adding this. I’m always glad to hear that we aren’t the only ones still contributing to our retirement. I do believe (and as you have shown) that getting out of debt can still be accomplished in doing so.
I had to take out a new mortgage to buy my ex out of the house AND pay off all the debts (it was worth it to get rid of him) at 53. The bank gave me a 17-year mortgage but I am on course (barring any real emergency) to pay it off in 8. I mean, who wants to be still paying a mortgage at 70? Apart from going through all my bills with a fine toothcomb and losing a spendthrift spouse, as you say above, one of the biggest savings I have made is always taking my breakfast and lunch to work, plus tea and coffee and so on. I have the food in the house, prefer my own cooking anyway and save a TON of money that way. When I see what some of my colleagues spend buying their food my eyes pop out on stalks. Anna
I’m often surprised at people taking on long-term mortgages later in life. We have friends who at 65 years of age, are only a little over a year into a 30-year term. Crazy! I want zero debt when we retire! You are so right about the cost of eating out. While Hubs doesn’t always have a choice when he travels, it is another story when he is home! I don’t know how people afford it!
They can’t afford it. That is why they are taking out mortgages at 65. They are living so far above their income. Who wants a mortgage in their 80’s?
I agree!
This has been a great and inspiring conversation. My husband and I are on two sides of the fence when it comes to saving money. He is more of a spendthrift and I try to be more on the thrifty side…… until I am fall of the thrifty wagon. Because my husband likes to spend money, I have several thousand dollars in an account at a totally different bank. No, he does not know about this stash of cash. That being said, I am fairly positive that he has a stash of cash ( amount unknown) in the gun safe. I respect his privacy and do not snoop.
“We” are rebuilding our emergency account and are almost at $1000. We do have one credit card to pay off, no mortgage, and he is still contributing to his 401k. I would like to get “our” emergency account to at least $3000 with an end goal of $5000.
~Lisa ~ recently posted…Checking in Tuesday List
They always say opposites attract! You are a stronger woman than I as I’d be very curious as to how much was in that gun safe! Lol
We are opposites! Don’t ask, don’t tell, is my mantra 🙂
~Lisa ~ recently posted…What We Ate and What We Spent Last Week (3/15 – 3/21)
I like your mantra!
So great that you have your April envelopes fully funded and you are working on May already. We have been ” living on last months income” for 3 years now and it has helped my peace of mind. It gives time to course correct when/if things go south. (Within 2 months of implementing this budgeting strategy, it was put to the test when my husbands corporate job/company was suddenly “going in a different direction”. Knowing next month was covered gave us the much needed time to breathe, regroup and plan. ) I highly recommend it.
Getting one month (or more!) ahead is my goal. I would have felt a lot better had we been in this situation when Hubs needed to be off work for an entire month late last year. I think these types of tests make a person take a step back and really re-evaluate our situations.
Because of DH being self employed in Construction and having lived through the 2008 building shut down, I would like him to have 10,000 set aside for future job loss. He has saved NOTHING, being the spender he is responsible for this category. I am job secure, and I can pay the household bills with my salary. our finances are also separate but in 3 months all the debt will be gone and since he are paying 900/mo on Care Credit, I hope he can start to save. He says he will, then start paying more on his truck (45 months left of 865.00/mo)
I need to focus on maxing my Roth (15 years to Retirement) and it has a measly 1800.00. My plan is to have 2000.00 in Emergency savings (currently at 600.00).
2008 was a tough year! I hope your husband can get on board with savings and paying off all debt. We are behind on our retirement savings too which is why we continue to contribute even though we are still in debt.
We never stopped contributing to my 401k as we didn’t want to lose the match my employer provided.
After paying off our debt, several years ago, my husband has been out of work due to an injury for about 15 months. Thankfully we still don’t have debt, but we have spent a bit of savings on car repairs, etc. We expect him to go back to work by June, but even if he doesn’t we will be okay.
At this stage in my life, I keep at least three months minimum expenses. We have food storage, and no consumer debt, but still have a mortgage, utilities, insurance, commuting costs, medical expenses, etc.
It is scary when one of you cannot work, I totally get that.
Continuing to contribute to retirement is a sticky point with a lot of people. Employer match plus that we are already behind are reasons we didn’t stop ours.
I’m honestly not sure how we would have survived had Hubs needed to be off for much longer than a month. I commend you for managing to keep up with your husband being off for 15 months! Hopefully, he will be able to get back to work soon.
I’m eager to keep building our emergency fund up. Peace of mind for sure!
Step one is the baby emergency fund. That is the one I am talking about, while people are trying to get out of debt(not mortgage). Dave wants you to be uncomfortable. If you are happy and comfortable then you are going to take longer to pay off your debt. That is why he says to sell everything. Once you pay off your first debt you get a “high” which makes you work harder to pay off your next debt . And it just keeps going. If you are putting some in saving and some in retirement and some towards debt it will take you 3 times as long. His plan really works. It is HARD! It is UNCOMFORTABLE! That is the point. You will never want to go back into debt.
Excellent point!