We completed baby step 3 before baby step 2. Why saving money in baby step 3 before paying off debt in baby step 2 may be an option. Working on the Dave Ramsey plan.
In the rules of Dave Ramsey save a little bit of money, pay off debt, then save more money.
You pay off all your debt before saving a larger emergency fund.
Baby step 1 or saving $1,000 is supposed to be the cushion you need to withstand something bad happening while you’re still in debt.
We decided to save for our baby step 3 before completing baby step 2
While I worked on paying off my debt my husband saved money. We both budgeted. Saved more, spent less, and had specific financial goals.
In less than 1 year I paid off $16,000 worth of debt and my husband saved $10,000.
Separately.
The reason for this was my husband’s inability to commit to the baby steps as written.
He was very supportive of my financial goals but challenged some of Dave Ramsey’s principles.
Although he admires Dave and follows many of his teachings this wasn’t one of them.
So while I paid off debt Michael started building up our savings.
This was something we compromised on.
Instead of trying to convince Michael we needed to do the plan as written, we made our own rules.
In the end, we live a completely debt-free lifestyle and have managed to increase our emergency fund to over $40,000.
The reason why Michael didn’t want to only keep $1,000 in savings was valid.
He had gone through many financial hardships in his life that he swore he would never go through again.
One reason for his resilience was a past layoff.
Before I met Michael fresh out of college he worked in email marketing for a large company.
After interning he was offered a position and saw it as an opportunity to have a job right out of college.
He was living in Oneonta at the time and decided to get an apartment in the capital district.
Just a year and a half later his dreams of moving up the corporate ladder were cut.
Michaels’s entire department lost their positions and was offered their severance.
My husband had a new apartment and now no job.
His money troubles began soon after.
He was jobless and unable to pay his bills.
Hotdogs and white bread were dinners more times than he could count. He was faced with the decision of keeping his lights on or paying his student loans.
What every new college grad fears my husband went through.
Unfortunately, this fear still lives deep within him.
Instead of trying to fight his reason for saving money, I let him have that peace of mind.
Losing his job and being unable to find a new one was life-changing.
For almost 5 months my husband lived off of very little. Michael attended workshops and job fairs and I quote he said
“I was looking for anything that would create a potential future for me.”
Lucky for Michael he later found an opportunity in sales for a local gym.
Fitness has always been a passion for my husband and when he couldn’t find a job in the music industry this seemed like a great option.
10 years later he is still in the industry.
This was not the only reason…
Michael got sick.
Right before our wedding, he began not feeling well.
We soon realized something was seriously wrong and we began focusing all of our energy on getting him better.
My husband spent the first month of being married home on medical leave.
He was unable to work and was put on disability.
Thank goodness at this time we were fortunate enough to be in an ok place financially.
I continued to work and lucky for us once he was diagnosed and put on medication his condition drastically improved.
What we also know now is that he is going to have this disease forever.
There is always the potential he could be hospitalized or again be out of work.
He also undergoes treatments.
A situation like this really makes you think about your future and how you manage your finances.
We needed to make sure that if anything were to ever happen we had the funds to cover both the probability of hospitalization and loss of a paycheck.
Saving money while paying off debt just seemed like the best option.
Murphy didn’t join us during our debt payoff journey but I think that was because he lived with us for a few years before.
What we learned was anything could happen.
Within 2 years Michael had emergency surgery from a basketball accident and got extremely sick. Both leaving him unable to work and on disability.
The past made us sit down and discuss how we were going to tackle the future.
Do we regret this decision? Absolutely not. Is it meant for everyone? Not necessarily.
So why does Dave Ramsey suggest a small emergency fund?
Because it will make you get out of debt faster.
Having $1,000 should instill some fear in you.
Fear isn’t always a bad thing.
Being afraid is our brain protecting us from something we assume is bad.
It is our brain’s job to avoid pain. To do that we must get out of debt fast so we can save sooner.
Being out of debt also makes saving so much faster and easier.
When we don’t have payments all of our focus can be on saving.
The $1,000 has clearly worked for many people, otherwise, the step wouldn’t exist.
Will $1,000 be enough for some emergencies?
Yes.
Some car fixes, smaller medical issues, paying a plumber. $1,000 could be enough.
But $1,000 won’t cover a hot water tank, a larger car issue or even a serious medical problem.
If your curious here is Dave’s take…
How much should you save?
I would consider you life situation.
If you have more people in your household. Do you have kids or someone that depends on you?
Are you a homeowner?
Is there the potential for an issue that will cost more than $1,000?
Is it something that can be covered by a sinking fund?
Do you have a medical condition?
Dave Ramsey does suggest upping your baby step one if you have an underlying condition.
Maybe $1,000 is enough if you consider sinking funds for things like pets, car maintenance, or medical expenses.
Is your job unpredictable, seasonal, or commission-based?
You could consider being one month ahead on bills or even stockpiling some cash in case your income goes down.
Are these scenarios where you would need more than $1,000?
Would $3,000 give you the protection you need?
Maybe consider saving $1,000 per person in your household.
The point is to be making smarter financial decisions.
Could we have gotten out of debt faster if we used that $10,000?
Of course, we would have shaved months off our debt payoff date. But having more in savings gave us peace of mind.
The entire time we were paying off debt never once did we need our emergency fund, not even the $1,000.00.
It was a 2-year journey for us.
Do what’s best for you in confidence you are doing right by your family and finances.
Want more posts like this one?
Our reason for getting out of debt
Is eating out a waste of money?
Pin for later
