One of the first things financial experts say to do to get a better handle on your finances is to build an emergency fund. Having some money in the bank is key to stopping the debt cycle and getting on solid financial ground. Dave Ramsey calls the first emergency fund the “Baby Emergency Fund”. You want just enough to cover the little things that might come up to knock you off course. He recommends $1000. To some people this might seem like a huge amount of money. To others it might not seem like enough.
I remember the feeling I had when we finally had $1000 in the bank that wasn’t earmarked toward anything. It was just there as a cushion to cover life’s emergencies. Just having $1000 in the bank eased my stress level tremendously. With 4 small kids though, emergencies tended to be high dollar and come more frequently than most people. It wasn’t long before I decided we needed $2000 in the bank as our baby EF. That is the beauty of it – you can decide! But just make sure to start somewhere.
We are currently trying to increase our emergency fund. Our goal for the year was to increase it by $1200. We have only touched our EF once in the past 5 years, but I still think we should have more in there. As the kids get older it seems that when things pop up they are a lot more expensive than they used to be. We have opted to increase this by depositing $100 a month into the EF.
If you are just starting out on building your savings then you should probably work quickly to build your baby EF. You can do this by slashing spending, using your tax refund to boost it up, or selling things. However you do it, having money in the bank that isn’t designated for anything but an emergency will certainly help you sleep better at night.
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