Saving For Emergencies
You mean I don't need a credit card?
Saving is different than investing. Saving creates stability. It is meant to be used in the short-term and should not be exposed to risk.
Emergency Fund
So what is an emergency fund? This is not a vacation fund or meant to be used at the mall during a sale. It is for those unexpected events in life - loss of a job, transmission goes out in your car, and so on.
If you're just starting out in the Dave Ramsey plan, baby step one says to have a small emergency fund of $1,000 to make it through most small emergencies while you're paying off your debt (daveramsey.com).
After you're debt free, you can move on to the fully funded emergency fund.
3-6 Months
The general guideline for a fully funded emergency fund is 3-6 months of your expenses. For some people three months is enough, others feel that nine months is best. Go with your gut and commit to whatever makes you feel the most comfortable.
When to Use it
If you feel that you are faced with an emergency, ask yourself three things before digging into your emergency fund.
- Is it expected? If it's something you can see coming, like Christmas, you should save for it separately.
- Is it necessary? If your family only has one car, it's probably necessary to fix it when it breaks. New furniture? Not necessary. It's great to have new stuff, but don't dig into your needs to pay for your wants.
- Is it urgent? The last thing you need to worry about is money when a situation arises. So when an immediate need comes up, focus on the task and let your emergency fund cover the money aspect.
Replenish
If you tap into your emergency fund, that's ok! Just be sure you work to build it back up again as soon as possible.
Tawna serves as a Dave Ramsey SmartVestor Pro for North Dakota and Minnesota.
Tawna Hermanson is a Financial Advisor and has been a part of Financial Strategies Group since 2008.
Tawna serves as a Dave Ramsey SmartVestor Pro for North Dakota and Minnesota.
Working with an advisor that is part of the SmartVestor network cannot guarantee investment success or that financial goals will be achieved. There can be no assurance that working with a Dave Ramsey SmartVestor Pro (SVP) will produce or achieve better results than working with an advisor not affiliated with the SmartVestor program. Advisors that participate in this program pay a fee to belong to the program for client leads that are provided. Dave Ramsey and the Dave Ramsey SmartVestor program is not affiliated with Classic, LLC and is not sponsored or endorsed by Classic, LLC.
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Disclaimers
Classic, LLC and Classic Asset Management, LLC, only transact business in states where they are properly registered, or are excluded or exempted from registration requirements. Registration does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.
Content should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of the publication and are subject to change. Content should not be viewed as personalized investment advice. All investment strategies have the potential for profit or loss.
Working with an advisor that is part of the Dave Ramsey Endorsed Local Provider (ELP) network cannot guarantee investment success or that financial goals will be achieved. There can be no assurance that working with a Dave Ramsey ELP will produce or achieve better results than working with an advisor not affiliated with the ELP program. Advisors that participate in this program pay a fee to belong to the program for client leads that are provided. Dave Ramsey and the Dave Ramsey Endorsed Local Provider program is not affiliated with Classic, LLC and is not sponsored or endorsed by Classic, LLC.