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Baby Step One: Save $1000 Emergency FundSubmitted by Rock House Financial on June 20th, 2018
Why is Baby Step One Important?
Even baby steps begin with a first step, and the first baby step is to get $1000 stashed away as quickly as possible.
This is the start of an emergency fund, so it’s important to understand what constitutes an emergency that would force you to dip into that money. For example, you should know that your phone bill is due next month. That’s not an emergency. You should also know that the oil in your vehicle needs to be changed every three to six months so you should have the money in your budget for the oil change. That is not an emergency because these are expenses you can plan.
Examples of emergencies would include getting in a car accident, having to purchase a new refrigerator because the old one went out and couldn’t keep your food cold, or needing to replace a water heater that suddenly broke. These are all unexpected expenses. Life events with expenses that you cannot plan for. These are emergencies that would necessitate dipping into that emergency fund.
Let’s take a step back for a moment. If baby step one seems daunting and you’re at the point where you can barely pay your bills, maybe your first step before going through the Dave Ramsey program is to get a better job or to do like Dave Ramsey recommends and go find a side gig. For example, you could consider driving for Uber or identifying a hobby that you can monetize on the side. You need to increase your income if you can barely pay your bills and can’t find the extra money to put into an emergency fund.
In addition, you should take a look at those bills. Are you in a house that’s out of your budget and the mortgage is crushing you? What about that car you bought, that has burdened you with a $500 car payment? Maybe you need to sell that car.
Your Next Action Items:
1. Arm yourself with Dave Ramsey resources. If the first baby step feels like a struggle, look at doing Dave Ramsey’s Financial Peace University. He advises people to take the long view and work on ways to increase income and decrease bills. Spend some time listening to his radio show or reading one of his books. This will help you gain motivation and knowledge you need to work through this baby steps.
2. Let's have a short phone call. As one of Dave Ramsey's Utah Smartvestor Pros, I am your advocate to help you through each baby step. Let's schedule a time to talk through financial assets you have. If you have an old IRA (Individual Retirement Account) or 401(k), or some investments that haven’t been managed, it would be good to take a look at those while you’re working through the baby steps. Let’s make sure you know where that old account stands so that you know any money you already have invested is being taken care of.
Next Article: Baby Step Two