Dave Ramsey’s Baby Step One - $1,000 Emergency Fund In The Bank (2024)

FAQs

What is the $1,000 emergency fund Dave Ramsey? ›

Starter emergency fund: If you have consumer debt, you need a starter emergency fund of $1,000. This might not seem like a lot, but it's just a temporary buffer while you pay off that debt. Fully funded emergency fund: Once that debt's gone, you need a fully funded emergency fund of 3–6 months of expenses.

We call this Baby Step 1. It's the first piece of your money journey, so don't skip over it. That starter emergency fund sets you up to begin paying off your debt—that's Baby Step 2. With some cash in the bank, you won't have to go deeper into debt when an emergency strikes.

How Much You Should Have in Your Emergency Savings. Here's a Dave Ramsey principle we agree with: If you make less than $20,000 per year, aim to have at least $500 in emergency savings. If you make more than $20,000, then aim for at least $1,000.

How much should you save? While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

Choose a traditional savings account or a short-term certificate-of-deposit (CD), currently the most attractive accounts. (Early withdrawal penalties on a CD rarely lower the yield below that of a savings account.) Consider opening a new account or sub-account for this money so you're not tempted to spend it.

But despite the larger pressures, they're not satisfied with their situation; 57% of respondents said the current state of their savings is stressing them out. Nearly one in four (22%) of U.S. adults have no emergency savings at all, Bankrate found—the second-lowest percentage in 13 years of polling.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Paying off debt can feel like it has to be your only financial priority. But you should do some saving while you're paying down debt. Even a small cushion of emergency savings can keep you from going deeper into debt when an unexpected expense pops up.

Suze Orman is right. In order to retire early, you need at least $5 million in investable assets. With interest rates so low, it takes a lot more capital to generate the same amount of risk-adjusted income.

Checking account

Keeping your emergency fund in the same account as the funds you use for everyday finances is a bad idea for two reasons: It's too accessible, and you aren't tapping into the interest-earning potential other accounts offer.

How much is a fully funded emergency fund Dave Ramsey? ›

You probably noticed “job loss” tops the list of usually unexpected expenses. That's the main reason the fully funded emergency fund is set at 3–6 months of expenses—so a job loss doesn't destroy your finances.

In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses. Everything starts with your budget. If you don't budget correctly, you don't know how much you need to keep in your bank account.

People have different estimates about the best amount to save in an emergency fund, and the answer will depend on your income and spending habits. Generally, your emergency fund should have somewhere between 3 and 6 months of living expenses.

Saving up just $500 can help you get prepared for the most common emergencies.

Fewer than half of Americans, 44%, say they can afford to pay a $1,000 emergency expense from their savings, according to Bankrate's survey of more than 1,000 respondents conducted in December. That is up from 43% in 2023, yet level when compared to 2022.

For the average person, $1,000 may not be enough emergency savings. Many experts suggest saving enough money to cover at least three to six months of living expenses. $1,000 is a great starting point, but consider continuing to build your emergency fund to have a solid stash of savings for emergencies.