Dave Ramsey’s Baby Step One – $1,000 Emergency Fund In The Bank

by Hank Coleman

The other day I gave a brief overview of Dave Ramsey’s baby steps system to financial freedom that he outlines in his book, The Total Money Makeover. There are seven baby steps that you should take in order to gain financial peace.

Baby Step 1 – $1,000 Emergency Fund
Baby Step 2 – Pay Off All Of Your Debt With A Debt Snowball
Baby Step 3 – Fully Fund Your Emergency Fund
Baby Step 4 Save 15% Of Your Income For Retirement
Baby Step 5 – Save For Your Children’s College Education
Baby Step 6 Pay Off Your Mortgage Early
Baby Step 7 – Build Wealth And Give

Today, I will show you the ins and outs and the method behind the madness of only establishing a $1,000 emergency fund to start The Total Money Makeover. Dave Ramsey’s book is the #1 personal finance book that should be on your bookshelf. I keep a copy of it on my nightstand. It’s that good!

Baby Step 1 – Why Only $1,000 In The Bank?

Dave Ramsey emergency fund of $1,000 to startThink back to every “emergency” that you have ever had in your life. I used the quotes because we tend to think that everything is an emergency when money is tight in our lives, but in reality, very few things are truly emergencies. Confusing wants with needs is one of the biggest errors that we make and one reason that you are probably in debt to start with. But, when you think about all of the true emergencies that crop up, having $1,000 readily available will cover pretty much all of them. That’s why it is Baby Step 1. There are very few emergencies that will cost more than that much, and those emergencies that do can often be put on installments and lumped into all of your other debts that you tackle with your debt snowball in the next baby step.

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Baby Step 1 – Get $1,000 In The Bank Fast

In order to keep you from going further into debt, you need to set up your starter emergency fund of $1,000 in the bank as fast as you can. So, how do you find that $1,000 when your budget is already probably super tight or even resulting in a negative cash flow every month?

One of the easiest ways is to sell something. This may not be a very popular piece of advice, but selling something is one of the easiest ways to get out of financial trouble. You will see it also in the next baby step when many times you can get out from under your debts, such as a car payment, by selling the asset. Do you have a car you can sell to raise the cash? Do you have some shares of stock that you can sell?

Do you have books, DVDs, CDs, textbooks, and other things that you can sell on a website such as Half.com or eBay? You may want to consider having a yard sale. This is a quick way to build up your cash reserves to get that quick $1,000 Dave Ramsey emergency fund in your bank. Also…don’t forget to put your emergency fund in a simple savings account or a money market account. Do not invest with your emergency fund.

Will $1,000 solve all of your financial problems? Of course, it won’t, but it will start you off on the right track. It will keep you from digging a bigger hole for your finances. You do not want to continue to add to your debt by continuing to rely on your credit cards. This $1,000 is your starter emergency fund to keep you from added to however much debt you have. Do not save more than that $1,000. As you will see in Baby Step 2, you will be using anything extra above that $1,000 for your debt snowball.

Getting that first $1,000 in the bank is Dave Ramsey’s Baby Step 1. It’s the first thing you should do.

Did you start with Baby Step 1? Do you have $1,000 in the bank in an emergency fund? What has been your biggest roadblock holding you back?

Baby Step 1 – $1,000 Emergency Fund
Baby Step 2 – Pay Off All Of Your Debt With A Debt Snowball
Baby Step 3 – Fully Fund Your Emergency Fund
Baby Step 4 Save 15% Of Your Income For Retirement
Baby Step 5 – Save For Your Children’s College Education
Baby Step 6 Pay Off Your Mortgage Early
Baby Step 7 – Build Wealth And Give

Dave Ramsey’s Baby Step One - $1,000 Emergency Fund In The Bank
Dave Ramsey’s Baby Step One - $1,000 Emergency Fund In The Bank

Open a Lending Club IRA and boost your retirement

About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 590 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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