Is a $1000 Baby Emergency Fund Enough?


If you’re a fan of Dave Ramsey or heard him speak for about 5 minutes, you’ll know that he is a financial coach who uses his system of “Baby Steps” to help people get out of debt and gain control over their finances. The first step in the system is to save $1000 as a starter emergency fund. But is that enough money to truly keep you from running back to the credit card should an emergency happen?

It’s not. 

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Why $1000?

Dave’s reasoning for one thousand dollars is that you should be able to quickly pull that amount of money together and it will provide a sort of protection against you and creating more debt. At this point in your debt-free journey, you’re likely behind on some bills (or skipped them altogether), and this is supposed to be enough to get you started so you can move on to step 2, which is where you pay off debt.

Since I’ve been married, my husband and I have had only one “emergency” that required only $1000. After I was rear-ended, we had to pay our insurance deductible while the investigation was going on. Oh, and that’s on top of the $100 reservation fee for the rental car provided by my insurance company. So it was more like an $1100 emergency.

But if we needed to come up with rent money on Dave’s starter emergency fund, we would be short. And it’s not because we live in a fancy apartment either. That’s just not enough money to protect you when things go south.

In a recent article on his website, Ramsey still maintains that $1000 is enough in 2021 to get by while paying off debt. His reasoning is that having so little money in the bank will be enough to light a fire under you to get your debt paid off and back to saving for emergencies.

My Proposal

If 2020 has shown us anything, it’s that Dave is way off the mark here. There are people still struggling and have gone through savings because they just didn’t have enough money. Heaven forbid you only had $1000 one year ago and lost your job due to a crisis. What would you have to do to stay afloat with only $1000 to your name and a family to feed?

While I don’t think you need your entire 6 months or so of savings from the beginning, I think it’s prudent to be realistic about how much money you really need while you’re paying off debt.

In this case, I propose one month of expenses to replace the idea of $1000. That way you’ve got your expenses covered for a month while you hustle for a little bit to bring in some more money. Yes, you’ll delay paying off debt longer, but preparation for unforeseen expenses is better than sitting in a tight spot because of outdated advice.

I’m not saying any of this is easy to do right now, but we have to be realistic about what we need in our household. Depending on the size of your debt and balance of retirement accounts, you may need to build up more of an emergency fund first before tackling the debt. Oh, and you’ll still want to contribute to those retirement savings accounts.

Dave has been at this for years, and God bless him. But his teaching isn’t Gospel. Evaluate everyone’s advice before you settle on a plan to get out of debt. Work the plan. Get out of debt. Give like you’ve never given before.

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I am a navy veteran and military spouse. I write about budgeting, savings, and debt.

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