Top o’ the Mornin’ to Ya!
Baby Step Three is my second favorite step (behind only Step Seven) because it’s such a game-changer. This is where you save up three to six months of expenses in your full emergency fund.
Having this safety net in place gives you incredible peace of mind and freedom. I remember when my wife and I had our fund saved, we were on vacation and realized we could walk away from a job we didn’t love if we wanted to. It was liberating!
To figure out your emergency fund amount, look at your budget and determine your family’s basic expenses for a month – things like food, shelter, utilities, and transportation. Then multiply that by three to six months. If you’ve been budgeting for at least 18 months, you should have a good handle on all your expenses, including those that only pop up once or twice a year.
Keep this money somewhere accessible in case of emergency, but not too easy to get to for everyday spending. A separate savings account usually works well.
With your full emergency fund in place, you have a cushion if you lose your job, your car dies, or you have a medical emergency. You can weather those storms without the stress of wondering how you’ll pay for everything.
That financial margin is so freeing – it’s the foundation that allows you to move confidently into Baby Steps 4-6, which are all about securing the home front and preparing for Baby Step 7: building long-term wealth and giving generously.
So if you’re on Baby Step 1 or 2, keep that momentum going! And if you’re ready for Step 3, make it your mission to get that emergency fund filled up NOW! Your future self will thank you!
Here’s a quick overview of the seven baby steps:
1. Save $1,000 for a starter emergency fund
2. Pay off all debt (except the house) using the debt snowball method
3. Save 3-6 months of expenses in a full emergency fund
4. Invest 15% of household income into retirement
5. Fund kids’ college education
6. Pay off the home mortgage
7. Build wealth and give generously
You be blessed!
Financial Peace – Baby Step 3: 3-6 Months of Expenses in a Full Emergency Fund
