My husband and I have been working on following Dave Ramsey’s principals for about 2 years. During the 2 years, we have taken breaks from the process for various reasons. However, if there is one thing I have learned from his baby step 1 it’s this:
$1,000 is LAUGHABLE as an Emergency Fund.
My husband and I are an average couple who have been married for about 3.5 years now. We have had some adjustments, due to immigration and career changes for the hubs; as of the writing of this post, our household income is about $46,000 a year, and we live in Arkansas where the median income is $43,095, so we are technically a little above average for the state. According to this article, we are about $5,000 below the national average, but the national average wage seems to be dropping each year. Who knows if we will be average or not next year?
Over the last 2 years while we have been working through the Dave Ramsey plan, we have had a fully funded $1,000 Emergency fund….once. For about a month or two. Believe me when I say it hasn’t been for lack of trying to get the money in there. We get it there, or we get it close, but when bad luck comes knocking on our door it breaks it right open and sits on the couch. Of course, when it happens we have to start all over AGAIN. Let me give you some examples of what keeps causing these issues:
Uncontrollable health issues, pancreatitis, 2 kidney stones, a Workers Comp claim and a broken rib have caused about $10-12k in medical bills and lost wages in 3 years
At Christmas a tree branch fell and shattered the windshield on my car- $200 to repair.
The Heating and Air Conditioning Unit broke at the end of last summer. We had a quote this year to replace the system (must be updated to code now)- $8,500
The roof needs to be replaced. There is some wood damage that has to be repaired along with it, and the best quote I have received is about $6,500
We also finally have new health insurance. The maximum out-of-pocket deductible for a family is $2,500 EACH.
Is anyone else doing the math along with me? $25,200-27,200 is the running total. Not to mention expenses that crop up here and there, like a few car repairs etc! I want to stress one thing in addition to all of the information I’ve given so far:
NONE of this debt is debt WE CHOSE, but we have incurred an average of $8,300 a year in unexpected debt. (ok, well, the house repairs are a downside of owning a house, they happen, but all at once is ANNOYING)
We do not have a car payment and we only own 1 vehicle.
Our house payment is about $520 a month
We have about $2k in credit card debt, 1 was used to pay for my husband to go to school so he could find a job making more than $8.00 an hour and the other was used for NEEDS during the times my husband has been out of work due to illnesses and he had no income. To give you an idea, he lost about $7k in wages last year alone due to a job change and illness.
Sorry Mr. Ramsey, you’re wrong; well more like you should consider an overhaul!
While it’s all well and good to tell people to stop at a $1,000 emergency fund in order to get out of debt faster, I think there is something to be proven by looking at the numbers above. Sometimes crap happens. Sometimes it happens a heck of a lot more than we would like for it to happen.
Get your $1,000 emergency fund and then decide how much extra you can add on top of it every month as a “payment” to yourself, especially if you are prone to medical expenses!!! If you’re paying everyone else $20.00 a month, shouldn’t you come first? $1,000 is a GREAT starting point, but in addition to that amount, I would continue to build my fund up until I had the full deductibles for Health, Home, and Auto insurance in my account as well.
What do you think? Is a $1,000 emergency fund enough to get you by until you’re debt free? How much would make you feel more comfortable? Tell me your thoughts!by