scared to only have 1K EF

[mama2James]

So, I have been contemplating getting on board with the DR plan. We have made the first step by not using credit cards anymore, we actually haven't for approx a couple years. I am in love with the idea of using the debt snowball, and plan to do that as soon as we move into the house we just bought and get the exact numbers for the budget, with utilities etc. Roughly, without the groceries and pocket money, our income is about $5000/month after taxes and health insurance and the out go including gas for the vehicles is about 3K on paper. So we are doing ok and can hit the debt pretty hard.
The thing that scares me about the plan is only having a thousand dollar EF, that seems so tiny. Right now we have about 8K in the bank and I am inclined to leave it all there, not use it to pay debt, what if something bad happens?
I'll update my sig so you can see what we owe...
Thanks for any input!

[rowdy35]

I had the same fears as you do, but I finally pulled the plug and used the E fund to pay off cc debt and lowered the EF to 1 K. I feel ok about it now that I finally pulled the plug, but it took me over 2 years to do so.

that's why i understand your trepidation about it.

[Luv2BeFrugal]

I think $1K is a bit too small, too. I would want at LEAST enough to get through one month with no income...

[Denvergirlie]

I kept my BEF at $2K, which would have covered one month of no income. I just wasn't comfortable with the $1K myself.

However, DR recommends the low amount because it's to motivate you to attack the debt. It's suposed to be scary and induce fear. That fear will keep you on the straight and narrow. That fear will keep you from ordering out pizza because you're too tired/ lazy to make dinner. You will think twice about putting things in your shopping cart because it's only "x" dollars and I have $8K in the bank. Etc, etc.

In your case, I would slash that $8K in half, and send $4K to the credit card consolidation loan. In another 1.5 months that debt could be gone with you able to throw $2K at debt a month.

[kmonokwe]

Dave always suggests that you do what works for you. His guidelines say 1k for several reasons: its enough to get you through most emergencies; baby step 2, ideally, is a SHORT step. Thats not true for most families, but if you get crazy about it like he says (rice and beans, get a part time job, etc), it can be! If you're only taking a year to get out of debt, 1k doesn't seem like such a bad idea. Its an easy amount to replenish, after the emergency happens, also. We drained our 1k EF around the 10th of this month, and have already been able to refill it.

That said, Dave always encourages people to go with what they feel comfortable with. He might suggest that you hold $2000 of your 8k and put the rest on the debt. Once you know how quickly you can be out of debt, the low numbers might look less scary.

[kellieetter]

I agree with the above posts, take that $8000.00 and put most of it towards the debt, in the long run you will save money!

[cheles2kids]

There is no rule that you have to use the Dave Ramsey plan down to the fine print.

There are lots of people who use a modified Dave Ramsey plan.

So if you don't feel secure enough using all of your savings, leave $2,000.00 in there & pay the rest on your first bill. That should *almost* pay it off, right?

This way you can have a bit more security *and* jumpstart your debt pay-off plan at the same time.

[mama2James]

Thanks for all the help! Even 2K EF scares me, I grew up always barely scraping by and using food banks, so i crave the security. I know that you can't truly have real security if you are in debt, but I have mini panic attacks when my savings account gets smaller. For now, I guess I'll just have to stick with my commitment to not charge anything else, and start snowballing as the first debt gets paid off. Also my sister will be moving in with us for several months at least, and we will be putting her rent payments directly on debt...at the very least we have plan, not perfect but it's a plan.

[blitzen]

I've always thought that the 1k EF was a tad unreasonable. If you have a genuine emergency (especially if you own a home) chances are it's going to cost you more than 1k to fix. To me, one months essential expenses makes much more sense--there are people who have lost their job unexpectedly and having 1k EF isn't going to do squat for them.

I realize though, in regards to his plan, it's much easier to sock away 1k and get moving on BS2--if you don't have much extra every month to build up your EF to 1 months expenses it can take too long to get moving on the debt part.

[xtena]

In the current uncertain economic times, I don't think 1K is enough, either unless you are already broke and/or low income, in which any money in the bank, is better than nothing. You of course are far from broke, but who knows what the future will bring? Knock that debt down as fast as you can but stay within your comfort zone of savings.

With the truck loan and credit card loan hanging over you, I'd probably take at least $4K of what you have, and attack the credit card debt; aim to pay it off completely in two or three months, then tackle the truck loan, followed by the student loans, just as aggressively.

So you know where I'm coming from: our income is similar to yours (used to be higher till I went part time) and we recently became debt-free including the mortgage. Mind you we never had credit card debt, but over the past ten years we paid off a mobile home (25K) two used cars (around 15K),and our current home (around 175K). We paid over $2K in medical bills when my mother in law visited from China and got very sick, and our share of the medical expenses incurred when DD was born and spent 4 days in the NICU was close to 10K (better than the 70K I was threatened with; thank God for the insurance appeals process which ruled in my favor).

During this time despite paying off all the above, I never let the savings dip below $3K and it usually stayed above 5K.

[mateosbaby]

This is why we still have 1 credit card (that we don't use). We have our $1k EF, which I am fine with, as long as we've got that credit card just in case an emergency IS over $1k. And with car repairs and home repairs, those things alone can cost well over $1,000, not to mention a job loss or health emergency (even with good insurance). Like I said, I am OK with having only $1,000, but only if we have an emergency credit card, as well. If we didn't have that, I'd be with you and putting MUCH more in the EF.

[kmonokwe]

mama2james - I think the most important part of this entire discussion is what you said there at the end. You have a PLAN. It may not work - you might have to re-plan in the middle of everything. But thats what Dave always says is the key to winning - simply having a plan and following it.

I know it may make you uncomfortable for awhile, but let that discomfort motivate you to get out of debt even faster! If you have a foreseeable emergency (such as a potential job loss), Dave always says stop the snowball and start piling up money. If there's no indication of an upcoming emergency, though, use your cash to get out of debt as fast as you can. You're doing great! Follow the plan

[larabelle]

If you are having mini panic attacks when your savings account is smaller than by all means keep your account at a comfortable level for YOU!!

[strezzed]

I also agree with going with an amount over 1K. I wouldn't leave the entire 8K in savings though. My rationale is the opportunity cost of it. Are you making at least as much in interest as you're paying on your most expensive debt? If not, put more savings on debt and save yourself some interest cost.

[littleplum]

It looks like if you put $2,000 a month on your debt, you'll be debt free in 15 months without even touching your current savings, compared to 12 months if you wipe it out to clear out the credit card consolidation loan. I would just leave the $8,000 alone.