We found that while we did have plenty of “mini-emergencies” while going through debt reduction, we never had one that was more than a few hundred dollars. Plus, add to that the fact that you’re going to be building a larger emergency fund down the road to cover almost any eventuality, and it makes complete sense.

in response to your ‘pay-cash’ dilemma, i have found that by keeping track of your gas expenses for say, two/three months, that will give you a good estimate on what you spend. using that you can then budget for gas (pad it just in case). also there are different gas websites that can help you find the cheapest gas in your area. it works even better if the gas stations are in the general area of your daily/weekly route.

i’ve just started listening to dave ramsey and i found that all that he talks about lines up with steps i’ve taken and research i’ve done. overall it’s a good program and the advice he gives is sound even though some of his comments can be dicey.

re: cc’s. i haven’t had one since i paid mine off four years ago. it came in handy for gas and major expenses (car repairs) but when i couldn’t pay it off every month it went. now, the cc companies are trying to invoke a new rule. interest rates wont be fixed and they will be adjusted whenever the federal reserve decides to change interest rates. the consumer advocate group is trying to get that over turned. should be interesting.

kristin

If I understand it correctly, the $1000 EF is in ADDITION to your regular budget. So rather than trying to estimate how much budget will be needed, it should be simpler to compile all expenses paid over the past year, then divide by 12 months–there’s your rough monthly budget, the expenses that are predicable and need to be planned for as part of regular spending. It’s not a perfect budget, but it’s the reality of your life, at least to this point.

If you can project that you’ll need $3000/mo in recurring expenses like housing, auto, insurance, food, etc, but the 12 month analysis showed you actually spend $4000/mo, the difference of $1000/mo is either excess that needs to be trimmed, or it represents expenses that will need to be budgeted for, like repairs, holidays, etc., and part of savings apart from the emergency fund.

Maybe personal finance has to be reduced to the simple “eat less/move more” principal of weight reduction (with all else mostly a matter of personal preference), so maybe “spend less/save more” and put all objectives and plans under that basic directive.

Sounds like you guys are talking about something like the “Debt Tsunami” from Man Vs. Debt that Trent has linked to before: http://manvsdebt.com/debt-tsunami-the-ultimate-method-for-paying-off-debt/

which personalizes the snowball. We are doing something similar to get the more painful (psychologically) debts gone first.

We keep one credit card. I use it mainly to keep business travel separate from personal finance. We do not use it for day to day spending, the only time it comes out of the drawer is when I take a work trip, and we never carry a balance, ever.

We also discovered along the way that we needed to save for a replacement car (probably 5-7 years from now) and my wife’s going back to school. This takes something away from our debt repayment schedule, but means we don’t incur any additional debt, so it’s all good!

There has been a lot of discussion that Ramsey’s snowball isn’t effective (mathematically), and it seems you’ve adjusted to that. If you can deal with the longer psychological “payoff” of getting those things done, then paying based on interest rate does indeed make the most sense. For some people, though, I can see that they need a “win” quickly, or will be discouraged. It seems, though, that you are OK with a longer term payoff, which is cool.

I wish you the best “weirdness”, because being “normal” sucks!

Dave Ramsey’s plan ‘clicked’ for me when I found a free ’snowball’ Excel spreadsheet, entered EVERYTHING, and realized I could have everything paid off in 7 years (including the house) without much effort.

My biggest “LEARNS” were;

1-I spent waaaay too much on food
2-I was using CCs because I had no EF- I had no EF because I never budgeted- I never budgeted because my wife and I somehow grew accustomed to buying whatever whenever- YIKES! (that’s changed now, and spousal communication is getting better than ever- too bad it took 10yrs)
3-We were current, but never getting ahead because I would always pay more than minimum on all cards, but would still have ALL cards with balances, very depressing! Then when CC companies started ‘violating’ terms (like raising interest rates on balance transfer offers, and removing the credit line) we felt the pinch. Dave Ramsey has it right, NEVER USE CCs AGAIN
4-I modified our snowball- I’m attacking highest interest first on 2 cards, then a family member we owe (they like to guilt us all the time), then student loans, then the last couple CC’s with extremely low rates and low balances…and had to figure out what to do with all the “12 months 0% cards” we had (Lowe’s and Home Depot mostly) where all the offers expired at different points in the future.

All in all, the last few months have increased awareness, communication, and a renewed vigor for life….i’m getting impatient, but the goal is now within grasp….82 months to go!!!!

Also, if you are anticipating something, it’s NOT an emergency — it’s a budget item. For car repair, add up what you spent last year and divide by 12. Obviously, if you know you have something big coming up (tires, timing belt, other major service), the amount should be higher. We’ve found historically that car maintenance (not including gas) runs somewhere around $50-75/month per car over the car’s lifetime, and that’s with me doing a lot of the work myself. Tires, timing belts and brake parts are major factors in that number!

We use the “pay cash” option combined with our debit card. Cash is great for controlling expenses you used to mindlessly charge. For example, I had a “Home Depot habit” once, and keeping a budget for home repair in cash has largely curtailed that. When we need to do a larger home project, we budget for it.

For us, gas is more like electricity or heating oil — you use what you use, and the amount it usually pretty consistent month to month. Ditto for the post office. If you had a problem with buying too many stamps in the past, then I’d worry, but if you didn’t have a stamp-buying problem, I’d not really sweat it.

For cash envelopes, we actually moved from an Internet bank to one with local branches. After we do our monthly budget, we withdraw the cash for the month from the bank using the human teller, and we can get whatever combination of bills we need. The bank we use has branches in the grocery store we shop at most often, and Saturday/Sunday teller hours, so this is not a problem since we usually go grocery shopping on those days, anyway, and the cash withdrawal is once a month.

Also, once you start getting some change in your envelopes, the problem starts to take care of itself, as well. You can also ask a cashier to break a $20 bill when they have the cash drawer open, as well. Some places won’t do it, but most will. We also used post-it notes to indicate when an envelope was over or under, so as the month progressed, we could even things out.

I think overall the most important part of the Ramsey plan is that it gets you thinking about your spending — and talking with your spouse (if you have one) about the financial goals. We deviate from the plan only after we talk about why we deviate from the plan, and understanding the trade offs. In the case of the emergency fund, saving more in it is trading time for more security.

You might want to listen to the radio show or podcast for some other ideas. Dave sticks pretty close to the principles in the book, but will deviate from them when appropriate. For example, if your employer is not doing well and is threatening layoffs, he might advise you have a bigger emergency fund. Or if you know a big expense is coming up (you have to move, you will owe taxes, a child is being born, etc), he might advise saving for that and then resuming the debt payoff.

1) We’ve begun the process, but do you have any resources that can help determine a more accurate amount for EF? $1000, though a good amount, seems inadequate to start with. I’m looking for info that might say; you have a washer and dryer, anticipate $100 of service, 2 cars, $500, and so on so that I can somewhat itemize my EF based on what I have that might cause the need to use it…understand me?

2) I’m also at the point where I’m ready to “sell” things to get some extra cash…problem is overcoming the “this might be worth something” syndrome and the “it is too much effort to list all this stuff on ebay” syndrome. Any tips on overcoming that step?

3) I’m also doing the “pay cash” approach to life now, but have hit a few snags. I’m gathering a list of things where “pay cash” hasn’t worked…my goal is to identify these things, then figure out how to get around them without using credit….here’s a few places where “pay cash” caused me grief;

-gas station (I wanted to fill up with cash, but the station would only release the pump if I prepaid…but how do I know what to prepay if I haven’t pumped yet….this irritates me….I don’t want to ‘underfill’ and have to make another stop later….

-post office after hours (I wanted to buy a book of stamps, but their after hours machine only takes credit/debit—grrrrr, I only carry cash now…wasted trip)

-taking out cash for envelopes. (sometimes i need an ‘off’ amount like $5 or $10, but the ATM only allows you to take in multiples of $20…so it throws off the envelope a bit)

You are exactly right! There is definately no “cookie-cutter” amount to be saved for an emergency fund. In our particular case we choose to work with $1000.

We had over $90,000 in consumer debt back in 2003 when we started the Dave Ramsey plan. Within 3 years we had it all paid off, had a “fully funded” emergency fund, and had saved enough for a down payment on our new home!

The plan really does work.!

My husband and I have an “Independence Fund.” We used to call it the Emergency Fund, but it’s sort of a combo.

The first few thousand dollars are an Emergency Fund, but everything we save in there after that is money that we think of as building our financial independence.

When our jobs stabilize a bit (we’re new to our fields), we will invest more and keep less as liquid cash, but for now, it feels better knowing that we have a lot to spare as things come up.

My latest post touches on the concept of choosing Financial Liberty, or “Not Always Living On The Edge Because That’s What Happens When I Don’t Make Actively Positive Choices.”

I’m pretty sure it’s in the Total Money Makeover, but it bears repeating. Your circumstances will affect how much of a baby emergency fund you build. Someone who works on 100% commission might want a slightly larger fund than a desk jockey. Women especially have a security gland that twinges when money gets low. My wife wanted a $2000 baby emergency fund. So that’s what we did.

I realize that Trent can’t go into the fine detail of the book (after all, he has a life outside of blogging!), but I’ve heard too many people complain that $1000 is a) unattainable or b) too low to let this pass without comment.

The point is to give your life an umbrella for when (not if) the rainy day comes. Later, you’ll build a hurricane-proof shelter.

That’s what the $1000 is for. How much trouble can you get into in a short time? Blown tire on a car, doctor bill, etc. For people who are renting a home and such, $500 is probably enough. For a couple who own a home, truly require two cars, etc. $1000 might not be enough…

When I became serious at the end of October last year, I minimized my expenses as much as possible without hurting my diet or health. This all became a point of pride and even a game to see how much remaining debt I could clear each month. There was also a vindictive element to my motivation. I imagined that every $1300 payment that made it to my card card account before the interest charge was like twisting the knife in the bank’s viscera.

More than that I think keeping careful track of my expenses, making my monthly expenses and grocery shopping very routine in order to keep costs stable, and carefully tracking my debt repayment of all accounts on a single spreadsheet have been vital to my ability to keep it all going. That debt repayment sheet gave me an easy way to take satisfaction in the progress I made from paycheck to paycheck.

If you can plan like this, leap into it. But also, our society encourages us to live extremely comfortable and complacent lives. By taking a truly honest look at what you need and don’t need while trimming expenses you can turn this kind of thing into a reinvention of yourself. That generates a lot of momentum.

I think the first baby step is probably the hardest for many people. It really breaks the habit of relying on debt and starts you in the right direction.

-Gen Y Investor

After different emergencies have popped up, it has gotten a lot easier. I sold some of my DVDs and games, set aside tuition refunds, and took on some side projects to get it done. It’s worth the sacrifice. Having an emergency fund has reduced stress.