Reader’s Question: Is A $1,000 Emergency Fund Enough To Start?

by Hank Coleman

Here is the next installment in our the Reader’s Questions Series which highlight questions emailed to me by you, the readers of Money Q&A. Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover if your money question is chosen to be featured on an upcoming week’s blog post.

If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It is one of my top ten best personal finance books that everyone should read. Now….on to our reader’s question.

I have just begun reading Dave Ramsey’s book, and I am a little nervous about only have $1,000 in my emergency fund when I start following his plan. Only having $1,000 in the bank makes me feel like I’m walking on a tightrope without a net. Is a $1,000 emergency fund enough?

This is a great question, and it is one that a lot of people struggle with when they first begin Dave Ramsey’s program of seven baby steps. The first baby step is to get a starter emergency fund in the bank of $1,000. He wants you to do this as fast as possible.

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There are several ways that you can accomplish this task. You can get on the right foot doing this by selling things that you have around your house that you do not use. 

Or, you can get a small part-time job, even if it is simply delivering pizzas, that will help you pile up the $1,000 as fast as possible.

Baby Step 1 – $1,000 Emergency Fund

Have you ever tried to get out of debt? I mean really tried. It is incredibly hard. Many people find themselves trying and slipping back on their old ways. Is a 1000 Emergency Fund Enough?You relapse for many reasons such as not changing your habits that got you into debt in the first place and having to go back to your credit cards when emergencies and Murphy crops back up in your life. Having a $1,000 emergency fund in place before you start to tackle your debt will help you from having to go back to your credit cards for a bailout.

When a true emergency comes up, and we all know they will, you should have a buffer of cash sitting readily available simply in a savings account earning next to nothing in interest at your disposal.

$1,000 Covers 99% Of True Emergencies

Is a $1,000 emergency fund big enough to replace the transmission in your car? Is it big enough to foot the hospital bills after an extended stay? No, $1,000 will not be enough to pay for these big items, but it will be perfect for 99% of all the emergencies that you will face while starting out paying off your debt with The Total Money Makeover.

Think back to all the emergencies that you have had or the things that you have needed to put on your credit card. Very few of them ever cost more than $1,000. One of the biggest tricks though is truly understanding what constitutes an emergency. Far too many of us think that everything is an emergency.

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We are not honest with ourselves, and that is one of the reasons that we are in debt. Do not cheat and use your $1,000 to fund vacations, minor things that can wait until you are out of debt, things that can be saved for and paid with cash, and others.

What Happens If You Have A Large Emergency?

So, what happens if you have an emergency that costs more than $1,000? While these are very rare when you honestly look at events, large emergencies may happen. Car engines, transmissions, extended hospital stays, and the like can wreck havoc on any budget and emergency fund.

You may still find yourself with other options rather than going back into credit card debt to handle these situations. You may not like the alternative that you are forced into choosing such as taking public transportation instead of buying a new car. In many cases, hospitals can help you set up a payment plan to allow you to pay for large uninsured procedures over time.

These payments would be added to your debt to be tackled in Baby Step 2 with your debt snowball. There are options out there for the large infrequent events that challenge your $1,000 emergency fund. The key is not to slip back and relapse into a life that you were living which found you in debt in the first place.

Having a $1,000 emergency fund is Baby Step 1 of the Dave Ramsey Baby Steps.

Past Readers’ Questions:

Do you have a money question that you would like to ask? Email me your money, investing, retirement, savings, or other question to Questions[at] If I pick your question for the next article in the series, I’ll send you a free copy of Dave Ramsey’s book, The Total Money Makeover, or you can pick from any of these other free books instead.

Thank you all so much for the questions! Please keep them coming!

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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]

Hank Coleman has written 578 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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{ 16 comments… read them below or add one }

Edward Antrobus

I’d definately agree. My understanding from reading the book is that the $1000 emergency fund is for emergencies, i.e. a car repair, furnace dying, etc. Then the larger fund isn’t so much an emergency fund but a fall-back in case of unemployment.

We had to dip into our emergency fund last month because one of my medical bills wouldn’t accept a payment plan. Maybe not a true emergency, but I felt that it was a better alternative than letting the account slip into collections or taking the money out of the down payment fund we are using in 3 months! Now working on building it back up.


Jai Catalano

I think true emergency is key. $1000 should do it but not for long at least not in NYC with 2 kids. I just hope to build the fund where I never have to truly worry about it.


Newlyweds on a Budget

I never feel comfortable with less than $5,000 in the bank. So for me, $1000 isn’t going to cut it. BUT if i had a TON of debt to pay off, i may feel differently about it…


shanendoah@the dog ate my wallet

$1,000 is enough to replace any single appliance in your home. It’s enough to replace all of the tires on your car, and for most car repairs anyway. It’s even enough to buy a clunker that will get you from point A to point B.
With insurance, it was even enough to cover a full month of my MIL having to be in a skilled nursing facility after her surgery.
Is it enough to replace your roof? Cover an uninsured hospital stay? Or replace a transmission? Probably not. But it can serve as a down payment if need be. Or, it can remain in the bank, so that as you’re figuring out how to replace your roof, when the hot water heater breaks, you’ve got the money to replace it.
$1,000 can seem like a huge number when you’re trying to save it up, and then seem like nothing when you think about emergencies, but it really is enough to get you through most of the day to day emergencies that you’ll face.


Marissa @ Thirty Six Months

I think $1000 gives you some peace of mind, but enough enough to think that it will cover all emergencies. I agree with Erika, I think $5000 might be the magic number.


Little Miss Moneybags

I’ve heard Dave Ramsey say that $1,000 isn’t SUPPOSED to be enough. It’s supposed to protect you from sliding back into debt because it’ll cover the majority of minor emergencies and give you a cushion for dealing with the bigger ones (it should cover at least your insurance deductible, for example, or a plane ticket for a death or illness in the family, but not the total replacement cost of your vehicle or a new roof).

However, it’s supposed to make you nervous, too. Once you’re on the path to debt freedom and you see what having a full emergency fund could do for you, that $1,000 won’t feel like enough. If you follow his steps in order, the anxiety caused by a not-big-enough emergency fund helps keep you gazelle intense to pay your debt back faster so you can start socking more money away.


Zack Jones

It really depends on the person’s situation. For someone that is just starting getting out of debt and no savings having a $1,000 emergency starter fund is a huge accomplishment; however to the person that has $5,000 as Erika mentioned Dave’s recommendation is to take that $4,000 extra you have available and pay it on debt. My wife and I look at it as a leap of faith in a way. We had $3,000 in savings along with $7,300 in debt on a 0% credit card using balance transfer. That 0% expires in October so we have to have it paid off before then. We took Dave’s advice, withdraw the $2,000 extra and paid it on the card. Yes we’re nervous that we’ve cut our savings by 1/3 but it has also motivated us to do everything in our power to pay off our remaining debt so that we can replace that missing 1/3 and fully fund our emergency fund. We are now questioning every purchase. Am I better off buying that $49 brand new book or buying one used for $25 and paying an extra $24 on our debt.


Hack @ Smart Money Hacks

When I first read TMM, I thought “$1,000 – that’s it?!” But an interesting stat I head on Freakonomics Radio was that more than half of Americans wouldn’t be able to come up with $2,000 in 30 days if they really needed to. $2,000 isn’t a lot – and I’m shocked that so many don’t have enough saved. BUT, it does help me to better understand why Dave says that $1,000 should be goal at first.


Doctor Stock

I suppose it depends on your assets and where they are at in their lifecycle. The older the asset, the more I’d have saved up. Makes sense… warranties run out.


SB @ One Cent At A Time

Interesting! I have many times that $1000 in emergency. If you are talking about 99% of times, I think you are right. 99% of time we can do with a grand. Question is how and where this money be saved. I think monthly build up n a separate savings account is the way to go.


Elizabeth @ Simple Finance

I differentiate between my “emergency” fund and my “rainy day” fund. To me, a rainy day fund is a smaller savings account with about $1,000 in it – like you said, enough to handle 99% of emergencies. My emergency fund is the wholesale “what would happen if my husband lost his job” savings account that has six months to a year’s worth of money in it.



That is very interesting that you make a distinction between the two. They seem like one and the same to me, but it just goes to show how different people need different psychological things that effects their finances.


Miss T @ Prairie Eco-Thrifter

We have an ER fund but we couple it with unemployment money. We are working this year on boosting the amount in there so that we can feel a bit better about what would happen if things went south. $1000 would not be enough for us. We are aiming for 6-12 months expenses plus some extra.


Jeremy @ Modest Money

I’m going to have to make a point of following this practice after I do my taxes. I’m going to have a pay big chunk on my self employed income. Then I’ll have a better idea how much I can put towards the debt I do have leftover. I can definitely see how it would help with the motivation factor. When you let yourself sit on too much readily available cash you reinforce the lack of urgency to pay off that debt.


Paul @ The Frugal Toad

A true emergency fund should cover 3-6 months of living expenses at a minimum. One of the main purposes of an emergency fund is to cover expenses in case you or your spouse lose your job. Unfortunately $1000 won’t come close and most Americans do not have an adequate emergency fund to cover expenses especially with job searches taking an average of 10 months in 2011. Yes $1000 is a great start but a long way from the amount you would need if you lost your job.



$1,o00 in the bank in a starter emergency fund is Dave Ramsey’s baby step #1. A fully funded emergency fund with 3 to 6 months of living expenses is baby step #3 after completely paying off your non-mortgage debt.


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