I read Financial Peace and Total Money Makeover this weekend and in both books it has a Note in them when he is explaining the cash-flow plan and it says this: The Emergency Fund should get ALL savings until 3 to 6 months of expenses have been saved.
Note: Savings should be increased as you get closer to being debt free.

Now, from what I read, you shouldn't be saving anything (but your $1000 EF) until your debt is paid (except house). Then when your debt is paid you start filling up that EF for the 3-6 months. Did I miss something somewhere? I'm really confused about that one line.

Plus, is anyone else freaked out about not having at least ONE month of EF in case of a job loss etc.? If my DH lost his job again (like he did last year) and even if he did get another job right away, you still have that delay in paychecks. Do you all follow the TMM exactly and what did you do in case of a big emergency like this?

Thanks for all your help,

Faith
wife to Jeff
mom to Logan (14), Ronan & Keenan (5 in 2 wks) & Rhiannon (18 mos)
2 cats Shalimar & Eldon:crackup: :crackup:

I've had the same questions. From what I've read from other people you get the $1000 baby emergency done first. Then pay off debt. Then save up the 3-6 months of living expenses for your fully funded emergency fund.

I think I read it once when he was talking to someone that was either self-employed or had something major coming up (I think he calls those storm clouds on the horizon). In those scenarios he wants the bigger emergency fund. The sheets could possibly be there for those circumstances, I don't know. It is confusing.

Yes, it is a little scary having only $1000 in the bank right now, at least for us. BUT.... I didn't have that saved at all before. It's a conundrum sometimes.... No, I didn't have any saved before, but before I would have counted on debt to save us in an emergency. But.. since we don't do debt anymore, will the smaller emergency fund be enough? I doubt it would cover a major emergency. But... (lots of 'but's, huh? lol) with this smaller amount it will keep us more gazelle to get debt paid off so we can save the bigger amount.

We have been doing it his way so far. I think we may actually deviate a bit pretty soon. I'm thinking of putting the student loan to the end, it would be my last debt other than the mortgage. It's pretty close to the half yearly income mark, so it almost qualifies. Circumstances of ours, the personal finance part, not because I don't think his way works. That part just might not work for us, though. I'd love to get some advise on it, other than from those who are dead-set Dave's way. Everyone is different and has different circumstances, ya know?

I know what you mean. We're a one-income family. And although my hubby has been at his job for 8 years, I doubt if he lost his job the $1000 would get us through finding another job and the paycheck delays. Pretty much we are both feeling like we are holding our breath in this step 2 hoping nothing really bad happens. We all know life happens, right? :)

I think his idea is to keep you uncomfortable about having only $1000 put aside for emergency, that way you'll pay off the debt as soon as possible. The third step is to put away enough for 3-6 months worth of expenses.

I still don't understand what the "note" line means about saving. It doesn't make sense. I guess I'm going to have to e-mail him. Anyway, my DH and I talked about it last night and realized we can get our Durango pd. off in July (YEAH!) and our 2nd mtg. pd. off in Jan. 2007 (BIG YEAH!), then we'll just have the mtg. left. My DH has a business on the side, so he is going to keep money in his acct. to build up our EF while we pay off these 2 debts, especially since they are talking about layoffs, and we are 1-income too. It is scary, especially with 4 kids at home. We used up all of our savings last year during the 5 months my DH was not working (except for his side business) and so I've been trying to get that savings built back up. Now that I've found Dave's program we are going to try his way and pray for the best. thanks for your help!

Faith:hearts:

Well before we started we had no money in savings. Then we built it up to $1000 for about a year. Then when we really got into his plan we built it up to $2000 because with a family of 6 we felt like if we really had an emergency it would probably be more than $1000 worth. But now after all debt is paid we are building it up to the full 3-6 months.

jennifer

I am pretty sure that I read in his book or from reading on his website that after completing babystep 1 which is the $1000 baby emergency fund , if your job is going to have a layoff or you feel that there is a good chance of a job layoff etc. I guess in other words if you are not comfortable with the future prospect of your employment then skip babystep 2 (paying off your debt) and go straight to babystep 3 with fully funding your 3 to 6 month (or however long you feel you need) emergency fund.Then after that is completed return to babystep 2 and pay off your debt.

I will have to look to see where I read that.

We are working hard to pay off our mortgage. Does anyone know what this will do when our children ages 16,16, 14, 7 will apply for college? Will it make us not qualify for financial aid etc? I never went to college so I have no idea how this works. Some I talk to say it will effect us negatively if we have no mortgage? confusing to me!

I think his idea is to keep you uncomfortable about having only $1000 put aside for emergency, that way you'll pay off the debt as soon as possible. The third step is to put away enough for 3-6 months worth of expenses.

I agree with this one- others too

Hmm...my understanding, and I have not read this book yet is to save up ASAP a minimum of $1000. Then continue to pay down your debts and snowball until they are gone. Once the debt is gone, take the last total snowballed amount and dump that each month into your emergency fund until its gets to the achieved level. Ideally how much does it cost you to live/month?

Groceries, gas in car, utilities, bill payments etc. Take the total amount you spend/month and multiply that times 3 to get your ideal 3 month total for an emergency fund. And do again, multiply it by 6 to get your 6 months ideal total. This way should you, your spouse or both lose jobs, you will have 6 months to find another one w/o freaking/stressing about not having money for milk or medication etc. Hence being able to dip into the emergency fund. So far I just dump $ into my ING when it can be spared. The less I see it in my bank account the less chances of me spending it! :laugh:

Idea sounds great, its just putting it into action thats hard and not touching it!
For those of you who have done this - KUDOS!!!

I only read TMM and I am pretty sure he means EF 1,000, pay off debt except house,then fund 3-6 months savings.

We are the situation where my husband is self employed so we are saving $2500. I think it would depend on the situation. :)
Jules

I know I am a bit late reading this but I agree with Shorty that the larger emergency fund is done after the debts are paid and then on to savings. This is what I have been trying to do though I only have just over 650 dollars for the baby step. This will just cover my absolute essentials. The reasoning being that paying down debt is the priority. I am now 19 days from final debt payment Whoo hoo! Emergency Fund should be in by end of year - fingers crossed and then keep rolling it on to savings.

Think if you run your own business or in work that is problematic you need a larger cushion for the baby step.

You have to do what you are comfortable with.:wand: