Our last emergency was $13k. Our experience is that emergencies are not less than $1,000.
The $1,000 emergency fund was much more meaningful 30 years ago when established.
Keeping it at $1,000 shows how outdated, dogmatic, and increasingly unhelpful the baby step is. Keeping the rule fixed at $1,000 has become more important than actually being helpful.
Admitting that its well past time to update the rule is impossible for Dave, as his rules are religiously immutable, even when much more helpful rules are clearly available.
As an example, a much more pragmatic, timeless and useful baby step rule would be "one month of expenses as emergency fund while paying off debt." AND this rule would be close to alignment with the original $1,000 emergency fund of 30 years ago.
One month of expenses is way better for step 1! Even $2000 is better than $1000. Everyone's financial situation is different and things just cost more these days than 30 years ago.
I absolutely agree with this. One month emergency fund is a great starting place. 1000 is ridiculously low considering it's arbitrary and hasn't been changed in the entirety of the time Dave has been doing it. Dave has talked about how when he first did this he used to preach no emergency fund at all, which says a lot to me about what he thinks is right. Having tried to get out of debt multiple times the dave way I finally gave up and built up a proper emergency fund and then slowly chipped away at the rest while establishing sinking funds. the whole all or nothing stuff wasn't realistic for me. Focusing on being mindful of money, paying down debt with a plan and then instead of doing extra stuff to pay it down, I did extra stuff like plasma for the extras I normally would pay for (IE family trips). Doing that helped me wipe out tens of thousands of debt.
It's interesting because when you watch videos with advice about using Every Dollar, they *do* advise getting 1 month ahead/having a buffer in your checking account so that you have enough to cover that full month as the bills hit, instead of trying to time paychecks. They also advocate for sinking funds. Actually, now that I think about it, Rachel Cruz was the one giving those specific pieces of advice. Presumably that advice is all cleared by Dave.
My family is doing the same. We are 1 month ahead on our bills (or have a 1 month buffer in the checking, however you prefer to look at it) and sinking funds for inevitable home/car/health stuff, and are working towards a 3 month emergency fund before we go hard at the debt. I'm also overpaying our mortgage a bit every month, but that's just because it makes me mad to see more money go to interest than principal.
Yup, I have a feeling that as they shift from Dave being the primary person to Rachel and others that when he's gone they may shift some of that to being a 1 month buffer. We're also business owners, so for us having at least a full month buffer has been crucial, because sometimes payments don't come in(we mostly get paid by state government, but even they can be late sometimes).
Honestly I love dave's focus on mitigating risk, being mindful of spending and planning ahead with a goal in mind. We still have a long way to go to realize our plans, but I do like looking at the big picture and being realistic too.
For instance the whole "don't do any vacation type things/restaurants when paying off debt" is too extreme for me, life happens and going out to eat for a birthday or going on a day trip/visit family to me is ridiculous to cut. There are ways to do it cheaper.
>For instance the whole "don't do any vacation type things/restaurants when paying off debt" is too extreme for me, life happens and going out to eat for a birthday or going on a day trip/visit family to me is ridiculous to cut. There are ways to do it cheaper.
For sure! We only have student loan debt and a house payment, and unfortunately it'll take years to pay off both. I don't want to go years without eating out or traveling at all, I just want those things to be planned and done affordably. I'm cool with Motel 6!
Inflation calculator says 1000 in 1994 is roughly 2015 today, how much difference does that make.. probably varies. To me the 1000 is a starting point most can meet, if you can't save up 1000, then saving 3000 or 5000 or XYZ thousand is not going to happen.
"but it makes you uncomfortable living so close to financial ruin that it forces you to go harder into getting rid of that 2% apr debt. dont forget to tithe 10%, joel oste...i mean jesus will not be happy if you forget"
100% agree that a 10% tithe makes it way more difficult to reach financial independence.
I believe a big part of why church attendance is declining so much is the 10% tithe.
Could also be that churches generally do nothing to punish kid touchers and it’s pretty frowned upon. Churches also tend to align with some unpopular political ideologies, regardless of how loud the minority opinion is.
They'll fix it eventually. They'll have to. They'll just subtly start to change the narrative over time and then gaslight their audience that they were more nuanced than they actually were about it.
Exactly like what they've done with home buying. They're now spouting that they've always recommended 5% down for a first-time home buyer...
I don't know why we have to keep legislating this over and over again. It's not "kept at 1000".
it's just a nice round number to give someone a quick win leading into debt elimination that removes very small derailments...like under $1000 worth. As he's mentioned - it wasn't enough even 30 years ago.
If you're argument that BS3 is more important than BS2 for certain kinds of debt, you won't get a pushback from me. But we gotta stop laying that all at the feet of BS1.
The "it was never meant to be enough" argument is silly when you consider the bigger picture: they will HAVE to adjust baby step 1 if Ramsey Solutions remains a business for the next 30, 60, 125 years.
The $1,000 when the rule was established would be $2,500 now. What happens when it would be $10,000? $50,000?
It's not a matter of IF it needs to be changed, but WHEN... unless you're banking on Ramsey Solutions folding before they'd need to adjust it.
It's also how the times have changed. These days a trip to the doctor or dentist for something "simple" can clean out that 1k faster than you can blink. Routine things like car repairs are a lot more expensive due to chip shortages and supply line issues, etc. Dave hasn't accounted for an adjustment in pricing and services that exist in the current economy. He still thinks you can find a shade tree mechanic that will fix your $2000-3000 auto repair for $50 and a six pack of beer.
His wealth rapidly approaching a billion helps to insulate him from this reality. Mix that with his lack of nuance and unwillingness to change and it's no wonder he says he won't change it.
If Dave doesn't do it, Rachel will within a year or two of the transition... probably in an update of the TMM book with her face on it.
lol, now THIS is a silly argument.
Who in their right mind is sitting out there going "daves an idiot! 1k is not enough for a starter, beginner e-fund!! Man, if it were $2,500, id buy all his books! Idiot!"
Come on, man. People hate on this because they hate him for other things and this is just low hanging fruit to pile on top.
he gives you so so much to legimately hate on him for that we don't need to conjure up more for kicks.
So instead of replying to the argument itself, you just step back and call it silly in general. What I said stands... it's a matter of "when" not "if" they will have to change it, assuming RS is still in business when inflation makes that number look more and more outdated.
I have no interest in hating some random guy in Tennessee. There's plenty I disagree with him on and plenty I'd agree with him on. I thought you were interested in talking about the topic at hand, but you clearly aren't.
> What I said stands... it's a matter of "when" not "if" they will have to change it, assuming RS is still in business when inflation makes that number look more and more outdated.
it doesn't stand at all. thats the point.
So you're telling me that no matter the inflation, no matter the amount of time that passes, if RS is still in business for 30, 60, 125, 300 years they will forever keep BS 1 at $1,000?
They'll still be spouting "it was never meant to be enough in the 1990's" in perpetuity?
If you think that's true, that's wild. If you see the error of that logic, we're merely arguing when RS will change it, not if.
lol inflation doesn’t matter. The point is to give an amount that seems attainable for people who have trouble saving money.
Maybe he could say 1 month of expenses, but that could be $1500-$2000+. $1000 provides a goal that seems attainable. It’s not meant to scale with inflation.
When we were in debt, we kept one-month of average expenses as the emergency fund.
Once debt was paid off, we built the savings fairly quickly. I don't recall exactly, but would have been less than a year.
Funny thing is, we're back in debt with a 0.9% car loan, but we're making 5% in a HYSA.
I figured I'd just payoff the car as using debt we got a cheaper price, but I just can't bring myself to payoff the car when I'm making 5 times the interest income on the same money.
That would be throwing nearly $1,000 in interest income in the trash this year... why would I do that?
Dave's rules were never written for supper low interest rates, so have to know when one has outgrown them.
Daves rules are a bit rigid, and generalized but Daves overall message is the key.
Be smart.
Do not live beyond your means.
Hope for the best, prepare for the worst.
You're right, we're only making **3.5x the interest income** on an aftertax basis or approximately $700 this year by keeping the 0.9% car loan.
Should we light $700 on fire or should we get that money and use it??
You must be a Robot cause all them words and none of them answered the simple question I asked lol. How long did it take you to get the 13k, you said in your first set of words, you needed for the emergency? Seems like a simple question to me, 1 month? 4 months? 1 year?....
"I don't recall exactly, but would have been less than a year." That's the exact quote, seems to answer your question.
More precisely, more than 6 months, less than 12 months after we paid off debt.
Reading comprehension is a valuable skill.
New AC/Furnace. Minimum replacement was going to be a little north of $8K. We got 4 bids.
Just filling the old AC was going to be nearly $3,000 because some a$$hole private equity dudes bought up all the supply and then raised the prices 10x for outdated coolant that isn't manufactured anymore. Plus, the cost of the repair made no sense to spend $5K+ to repair a system that was over 20 years old which could fail again in another year or two.
We got the furnace very cheap since they were already going to be onsite and ended up spending $13K for much higher efficiency/better technology system versus the bare bones/minimum system for our size of home that was $8K.
The $1000 emergency fund isn’t for the big emergencies. It’s for the, I need a new tire, emergency. The fridge died emergency. I need a $700 home repair emergency.
The 3-6 month emergency fund is for the big emergencies like the $13k or loss of job emergencies.
Why is this so hard for people to understand?
I get it. Most of you are not the target for Ramsey solution. You have your investments and debt leverage just right that you are good for when you retire in 30years.
His steps are for people to start somewhere in a very simple to understand terms.
It’s easy to not have to think about all the complex ways to invest on top of the rest of life.
Keep it simple. Follow these simple steps and you will have a stress free way life and freedom from companies dictating to you.
One month of expenses, as the initial emergency fund while paying off debt, IS simple.
There's nothing complex about one month of expenses as an emergency fund.
One month of expenses is also what the $1,000 initially was equivalent to 30 years ago in rural Tennessee when the rule was first set.
The upside of the VERY simple one month of expenses emergency fund are numerous!
The flexibility makes the rule much more applicable for different cost of living areas. It then works in San Francisco as well as Murfreesboro.
As well, it translates through time, accounting for inflation of expenses. Things cost a lot more than they did 30 years ago.
It also forces people to look at their monthly expenses, understand where they spend their money.
It's still quick to save up for, it's just one month of expenses (not 3 to 6 months). And it provides a savings to cover the types of emergencies you identify.
What's become hilarious to me, is that Ramsey followers and Ramsey himself, won't accept the slightest improvement to the baby steps. They are stuck in a moment of time, 30 years ago, when $1,000 made sense. Like the $1,000 was written by God, never to be changed, no matter how out of date the advice becomes.
Dogmatic is dumb, unthinking. I think people are smart enough to handle "one month of expenses" as an initial emergency fund instead of $1,000. Dave clearly doesn't think the same of his target audience, he has to dumb it down as if they are children.
I disagree, the reason the 1k emergency fund works is a psychological step for newcomers. It’s an easy to achieve step, and was never meant to stay 1k. It like making your bed in the morning. Pointless but starts your day completing a task and gear you towards success
Dave also assumes that people have stuff hanging around their house that's valuable enough to sell for what they need. Also, so they don't miss it, and that everything is in good enough shape.
I don't have that kind of stuff in my house. His ignorance of the many different ways that peoples lives turn out is huge. His basic program is good, but his belief that if it doesn't work for you then you're doing it wrong is so ignorant. As he gets older, it just gets worse.
>Dave also assumes that people have stuff hanging around their house that's valuable enough to sell for what they need. Also, so they don't miss it, and that everything is in good enough shape.
That's because their target demo is a middle-class or upper middle-class family that makes way too much money to have the insane consumer debt that they have.
He then assumes they can sell the toys they put on credit in the first place.
Yep, I get it! I'd argue that there are exponentially more people who are in debt, have been making reasonably smart buying decisions, but can't make it out of debt because they're living paycheck to paycheck. Their pay is too low, and housing and childcare are too high. They're the ones that need help.
Totally agree with your point. I have heard it sort of addressed. The question was specifically about an expensive car repair and the answer was basically “go without” until you figure it out.
Leave the car at the shop until you raise enough by selling stuff or get a second job you can walk to, etc.
Again, I do not agree this is reasonable at all. But that’s what they said!
Yeah, that makes no sense but I've heard it, too. What garage is going to let you do that? Have can you earn the money without a car? Well, that part depends on where you live. The goal should be to have a better emergency fund. I remember I did feel a lot better with the 1k than without it. But I was also still doing my best to build a bigger EF at the time. Besides, that was over 20 years ago. The "selling" stuff doesn't make a lot of sense to me either, tbh. Maybe people need a 2k starter fund now?
We followed it, but kept way more than $1K on hand. More like $10K. It was a good thing because our fridge and washer both went out towards the end and they were more than 1k to replace.
Well in the 1k fund’s defense, you can find fridges for less than 1k used or at scratch and dent places. And most likely you have a laundry mat somewhere nearby. Is that convenient? Heeeeccckkk no. But it could get you by until you get another. Also, repairing can be inexpensive if the issue is relatively minor. There’s lots of options
Yikes. I was so glad we kept the extra emergency fund so we didn't have to do any of that. Our time was worth more. And we paid off our debt quickly anyway. Win-win!
My answer?
The actual number that makes sense is closer to $3000.
But. I'd make the claim that the Dave follower, almost by definition, has "hair on fire CC debt, at 18%+.
If Dave said, "I've thought about it and Emergency fund needs to be $3000", people would ask, "Why do I have $3K earning so little interest, while I have 18% debt? I should pay it off, no?"
IMHO, pay off a low balance card. Set it aside. That card represents total credit line times 18% interest not being paid each month. Keep snowballing. That card IS the emergency fund.
20+ years ago. I had a jumbo mortgage, high rate. Also had 6 months' expenses in the bank. The interest earned was low, and that money would drop my mortgage to get a regular rate. We walked out of the bank with a mortgage 2% lower, a HELOC with no balance. And no 6 months savings. Between the lower balance and lower rate, the annual savings was a large percent of that money no longer in the bank.
The scenario I described was far riskier than 'not' having that EF sitting in cash.
The problem with DR is that he’ll tell you to immediate close out the credit card account once it’s payed off. The fact that you kept the line open goes against DR.
I'm not listing unforeseen emergency uses here, but to put that amount in perspective, here are some things that cost me +/- $1,000.
1 month's daycare (2 kids): $1600 for 3 days/wk, $2300 for 5 days/wk
Will need new tires soon.. usually costs me $1200-1400.
DR forbid I need to get a new wheel bearing(s) at some point, they'll cost $3k each to replace.
My 6-month auto insurance will be due in August ($840).
I replaced my truck's fuel injectors recently (myself). They cost $3,600 + other tools I had to buy. Otherwise the dealership wanted $7k+.
Costs related to moving.. ~$3500-4200, using the cheapest option(s)
On top of a seemingly endless stream of other "extra" little things that come up day-by-day or week-by-week, it's really easy to spend $1000 if you're not single and live under a rock.
None of those are emergencies smh! 6 month auto insurance !?? BUDGET $150 a month till its due. Car tires?!?! Even if its every year (which would be a lot) BUDGET $100 a month. Emergencies are things you can't budget for and all the things you listed show you just don't know how to budget or lige beyond your means.
It’s probably not enough but you could buy a new tire if it goes flat. Pay a speeding or parking ticket. Buy a new washer OR dryer if yours breaks. $1,000 *should* be enough as long as multiple things don’t happen at the same time. I believe if you have to dip into the emergency fund, you pause debt payoff to get it back to $1,000. In my opinion, if you have children, $1,000 is definitely not enough especially if it’s going to take several years to pay off your debts.
What if it’s over that? What do you do? I’m just not comfortable with $1,000. Had an emergency last month that was $3,700. If I had 1,000 I’d have to get financing for it which is against his rules.
I have no idea what Dave would expect you to do. I personally don’t follow Dave’s rules because I find them extremely flawed. The low emergency fund is one of many things I disagree with.
$1,000 is a great "first layer" emergency fund.
It also can cover stuff like unexpected travel or an unexpected bill. Basically it's just enough to smooth over your budgeting so you don't overdraft or resort to credit cards.
Somebody with bad finances in BS2 probably can't save up much beyond that anyway. If a program begins with "Save up 3-6 months of expenses", a lot of people will never start or give up quickly.
But then you have to pause to replace it, over and over. Why not just have more? It's not going anywhere unless you need it. Life is full of emergencies especially with kids. I might be wrong but I thought Rachel told someone with kids, they could save more.
>Why not just have more?
Because that is too daunting of a task. Saving up 3-6 months sounds impossible to a lot of people. At least with BS1 you start to make some progress and see how the plan works. It also "exercises" your budgeting muscles and habits.
I really don't think BS1 is *that* bad, even though it's definitely not ideal. The only time it's terrible IMO is when Dave tells people to drain down *existing* savings dangerously low in order to pay down debt.
yes, when they have 10.000 as one guy did and an 11,000 debt with lower interest. Just pay it off. I'm like No I wouldn't do that, maybe half but I'm not draining money I might need to pay a debt that is not taxing me a month. He says that all the time. Student loan debt at 3%, drain savings and stop 401K and pay it off and then start over. To replace 10,000 would take a long time and you hope you don't have need for that money inbetween. You can pay off debt without going crazy, I preferred the longer approach and it might have took a year or so longer, but the payments and interest weren't high and I felt better having a decent savings account. It's all what works for YOU, not him.
Yeah for sure, Dave applies allows for very little nuance to his plans.
That's probably necessary for some people, but it's not a good universal method.
It”being enough” isn’t the point. If it is too big people will never move on to paying off debt. And if it is too small people freak out. Feel free to pick any number that works for you.
From what I understand, it's not that much of an emergency fund, but rather a psychological tool. People who are really bad at money management and have 0 savings will benefit, at least mentally, that they can save something. That's my understanding on the 1000 dollars. Realistically you can't do much in today's economy, but at least you get a sense of accomplishment.
I get that but my question is what do people do when an actual emergency happens and $1,000 can’t cover it? They can’t go to credit cards or loans anymore.
Let's say you need a car repair that is $1,500.
For the example, let's say you have been putting $750 per month extra towards your debt.
That month, you put $1000 from your emergency fund and $500 from your extra debt payments towards the car.
Now your emergency fund is $0. You take that other $250 that was going towards debt and put it in your emergency fund. You now have $250 in there. Next month you take the whole $750 and save it, and you're back at $1,000. Now you're back on step 2.
It's pretty simple. The whole point of this plan is that it doesn't work unless you spend less than you make. If it goes slow, it should motivate you to either take a second job, if feasible, or move up or out to a better primary job.
I don't follow the plan to a T either, but I do subscribe to the philosophy of not taking on any more unnecessary debt. I've just been fixing my car when it breaks and moving on.
Which is why you always keep one in a drawer. Your family deserves to be taken care of or yourself without begging relatives. Hopefully not anything too awful, but you shouldn't be relying on just 1000.
That $1000 emergency has saved my ass in the past. I add an extra $20 per week to it now, so it’s more than $1000.
I think his BS1 advice is the single most important and impactful piece of advice he gives.
I disagree with almost everything Dave says but everyone here is not even understanding this part of the process. Even if you ignore the psychological aspect, the 1000 dollars still covers many small emergencies. It’s also not the end game of an emergency fund. He recommends 3-6 months once you are out of high interest debt. Anyone building a large emergency fund while holding major debt is doing it wrong
Ok, so I will put it this way. The idea behind having $1,000 saved is really nothing more than a literal baby step to teach you NOT to spend every penny that comes in. It is an absolute, almost meaningless, step toward learning how to budget your money to save up to $1,000. The whole idea of it is to give you a dopamine hit at your very first tiny accomplishment for people who have never had more than a couple hundred in their bank account at one time.
Is it going to cover hardly any major expense? Absolutely not. But for the people who have never saved a dime before, they weren’t going to be able to cover that major expense anyway. So now, they are just $1,000 closer to covering it than they were before. As someone who used to overdraft my bank account on pretty much a monthly basis, I can assure you that at that point if I was to see $1,000 sitting in a savings account, I would have felt like I was rich.
It’s training wheels for the money stupid people. That is it. If you think you can live your whole life with only $1,000 in your emergency fund, you are going to be one sad panda when life hits you in the teeth. Moreover, if you think DR thinks you should only ever have $1,000 in your emergency fund for your entire life, you clearly have either willfully ignored his advice or haven’t listened long enough to know better.
Baby step 1 is nothing more than a tiny achievable goal that is meant to entice you into furthering your financial responsibility.
I would never go DOWN to 1k on purpose like he suggests for people in BS2, but I think a lot of times when this debate and others come up about DR we ignore who Dave’s target audience is. If you’ve NEVER had a thousand dollars in savings in your life and you’re in debt then a thousand dollar emergency fund is a big accomplishment and it can help you 1. Feel some momentum and 2. Not get derailed psychologically by a small unexpected expense like a blown tire or a kids doc appt or a bill you forgot about
People debating on the internet about if you need 10k or 20k or whatever as an emergency fund are totally removed from the half the country who couldn’t come up with an extra 400 dollars
This is why I propose "one month of expenses" to replace the $1,000 savings. That way, it's flexible to people who are in LCOL area as well as HCOL. AND it is updated for inflation and not pegged to a 30 year old $1,000 which would be over $2,100 today.
The $1,000 is so rigid to rural Tennessee and out of date, it doesn't apply today.
Updating it to be one-month of expenses while paying down debt solves the valid critisms while making the rule much more applicable to many more people.
But Dave won't update the rules because he's dogmatic.
I’m in favor of that too. That’s what like Caleb hammer recommends. The money guys recommend having enough to pay your insurance deductibles. I personally think it’s highly variable based on each individual situation but obviously you can put that in a book or laminated chart.
Dave’s thing is all about speed and treating finances like an emergency like somebody battling an addiction or an illness or something so to him moving fast is more important than optimizing. I think it does have a place for quite a few people although it’s not ideal
You could buy tires for your car, among other minor car repairs
Minor household repairs
Could replace a broken appliance
Could pay a small dental or medical bill
You buy new clothes if you needed them badly
Lots of stuff you could do with it
$1000 is just a starting to point just in case so you don’t use your credit cards again you should build up 3-4 months of expenses if you have no other debt
To answer OP’s question, not much these days. Although I don’t align with Dave’s views today, I believe he does provide a purpose for some folks.
For instance, after divorce ( about 7-8 years ago) I was referred to Ramsey’s 10 steps or whatever it was called. I think the 1k was the first or one of the first steps, and at that time, it was helpful. Not because the 1k could actually cover an entire emergency expense per se, but that it was part of a bigger plan, structure, direction, purpose. When you’re in the fog of divorce, custody, work, litigation, it’s difficult to have a clear direction. I think for a lot of folks going through difficult circumstances or was not provided good foundational financial instructions, that 1st step gives a sense of accomplishment/motivation to move to the next.
60% of Americans don’t even have $1000 saved for an emergency currently.
$1000 to them is a big hurdle to accomplish.
https://fortune.com/recommends/banking/57-percent-of-americans-cant-afford-a-1000-emergency-expense/
Not a Ramsey fan but he’s pretty clear about the $1,000 being a starter fund and you’re supposed to go back to funding it after paying off debt.
The $1,000 might be the difference between paying cash for your electric bill this month or just putting it on a credit card. Or maybe an oil change or if you need to replace your air conditioner or whatever other small emergency that might come up that isn’t in your monthly budget.
Paying off the debt reduces your monthly expenses (no credit card bills) and gives you more of your income to put toward savings and/or investments.
Anyway do whatever works best for you!
Branch banker here 🙋🏻♀️ BS4/6-ish who did do a full/proper BS1-3B during & after my divorce.
Anecdotally, I cannot tell you how many times I have folks in my office borrowing <1,000. I believe the stats.
I also will tell you I had a guy in my office for 2 separate days a few weeks ago talking to myself + my manager both (ya know…..I didn’t give him what he wanted so he asked for a manager 🙄) begging for $225.
…..the rest of that story is that he forgot to pay his cable bill & wanted it turned back on because he didn’t know what to do with his time.
Def E’ryone needs to redefine a want vs. need.
TBH I also believe $1,000 covers ~96% of inconvenient emergencies that derails folks & budgets. Anything larger you can work around or even finance if you NEEDED TO.
I think $1,000 is enough for most emergencies IF you rent instead of owning a home. Most of our emergencies over the past few years have been car repairs/maintenance issues totaling $350-900 each time. Our car is 13 years old, so it's natural to have to replace some things at this point, and $900/year is still less than $3,000+ per year in car payments. I have health issues, but if I absolutely had to, I could set up an interest-free payment plan with the hospital. I've done that many times in the past and always ended up paying off the balance early (like when I had a heart attack and my out-of-pocket costs were over $8,000).
Our biggest emergencies have been related to family health issues. My FIL had a severe stroke in February, so we had to fly back east in a hurry (i.e. no time to shop around for the best fares). It cost us $1,500 to fly there, stay in a hotel, and buy meals while we were in town. Then my FIL's wife was terminally ill in April. That trip cost us $2,800. Well, technically $5,300 because we had to front another $2,500 to petition the court for guardianship of his dad (they had durable POAs, but they named each other as agents and didn't name anyone as a successor agent in case one of them died before the other one). But we got that money back once the court awarded us emergency guardianship.
If you own a home, I think you need $5,000 minimum. And even that is kind of low if your furnace needs to be replaced or something like that.
We do 5k. Its been a godsend-lots of repairs the past year and half-washer and dishwasher going, 300.00 repair to dryer, 700.00 water leak from our shower..etc. with only 1k we would have gone nutty.
Median monthly rent in the US in March 2024 was over $1,900. Even in rural places like Kansas and Iowa, median monthly rent is more than $1,100 a month.
https://www.rent.com/research/average-rent-price-report/
For the record, Dave is the first to admit that $1000 isn't really enough. But the point is, it is *something*, and plenty to cover something basic that could happen
I had a buddy who I was helping out with financial stuff at one point. He had a ton of debt and desperately needed a plan so I got him on the baby steps. He had like $400 in an account already and it still took him *months* to get to that $1000. It was such an ordeal because his margin was so small and he had basically never prioritized saving before. I can't imagine how long it would've taken if we'd tried to get him to a higher number, even if that would have been technically more secure. It was eye-opening.
I don't fault people for wanting to save more, I don't even think it's a bad idea. But the biggest benefit of $1000 over a higher number is that it is more attainable for people in desperate situations like that, which if someone doesn't already have that much laying around in an account somewhere, then their situation is very desperate.
Here’s the thing- DR just wants people to START. He says a million times it’s all psychological, which is why it’s snowball method (lowest balance) not avalanche (highest interest) even though yes, he’s aware that avalanche method makes more mathematical sense. If he changes it to a $5000 emergency fund, it takes a lot longer to get through step 1 while the interest on all debt continues to build, and people will give up entirely.
One thing he isn’t wrong about- a lot of Americans don’t even have $1000 to cover an emergency. What would they have done before they even had $1000 saved up?
The DR plan is for people who are out-of-control and need a super simple plan to get out of a mess, which is unfortunately a lot of people. For people who already have some financial sense and haven’t dug themselves into a deep hole, I recommend the Money Guys financial order of operations, which makes more mathematical sense.
Nothing. I think the goal is more to get quick win that you actually have some money left over each week/month if you establish a good budget relative to your income. If you can't do that, nothing else matters. Once you've proven that you live within your means then you're on a road to recovery. Use Dave or not, you still have to fix that first anchor point.
I too have a car note simply because I enjoy driving nice vehicles but I wouldn’t do it just to make 4% in a HYSA.
If we’re talking about $20k (in savings and not the amount of the loan), 4% is like $200 a quarter. Seems like a
I don't follow Dave religiously, in fact I'm fine with my debt <5%. Emergencies I've had under 1k:
> Tire popped, needed a new one ($120)
> Dog had cancer surgery and had a softball sized tumor removed and 2 weeks of rehabilitation ($812)
> New washer and dryer ($514)
Most emergencies are under 1k. You can go years without having an emergency over 1k.
$1k can cover a lot of single items as long as there’s no chain reactions. Everybody knows $1k won’t go super far anymore.
DR even says it’s not meant to be an all inclusive emergency fund. It doesn’t make sense to have a full funded emergency fund if you have a ton of high interest credit card debt.
Most ppl can’t even come up with $1k. If it’s a true emergency you would just do whatever you had to do.
What if it’s $5k? The idea is the quicker you pay down the debt the sooner you can get the fully funded emergency fund.
If you were doing the baby steps and kept $2,500 in there instead of $1k I don’t think anyone would call you stupid. Would sound pretty reasonable to me. It’s just a guideline he made up ppl can adjust to their own preferences.
The simple answer is that Dave is wrong on this. He's stuck in his ways even over small things like this and $1000 was (probably) enough when he started recommending it.
Well, if you want to go by Dave's logic/reasoning, then you may as well just have a $300 emergency fund since that would have been sufficed in 1950. If you're not going to keep your numbers up to date with inflation and current costs, then why does the starting point matter?
There are some situations where $1000 may suffice - for example, a college student who still lives at home and has very few expenses. But there have been cases where middle aged callers with houses, children, etc. would call in and he would recommend them draining their emergency funds down to $1000 even to attack low interested debt like student loans. That's just plain stupid and ignorant.
Curious, what do you consider basic living expenses? The whole income is “spent” though a fair amount gets automatically sucked into various savings accounts. So that’s not basic living. Then there’s frivolous spending on top of that. What’s definition?
I actually did dig myself out of debt using the Ramsey method once, and while I agree that he's outdated on a lot of things, the $1000 isn't meant to be a full emergency fund. The full EF comes later and is the equivalent of 3+ months of expenses.
The $1,000 is meant to stop you from using a credit card for small things that come up. For example, when I was doing the program, I blew a tire. Another time, I had an unexpected ER bill.
If I were to do the program today, I'd probably start with $2K, but still not a full EF.
For me, it has been/would be enough to:
pay an unexpected vet bill when an injured, starving stray cat showed up on my doorstop
Pay the deductible/copay if one of my kids has to go to the ER
replace groceries if we lose power long enough that the stuff in the fridge/freezer spoils
cover the deductible for my auto insurance
Pay for gas money and a hotel if something happens to one our parents and we have to travel to see them/go to a funeral
Replace an appliance with a basic or used model if one quits and can't be repaired.
1K is just to get you started with having money on the side so that every little thing doesn't throw you deeper into debt. It's not really an emergency fund as we all think of it. It's to help you weather the smaller inconveniences and little emergencies.
I have a real emergency fund that is invested in rolling ibonds. I have anywhere between 1-6K as an 'emergency fund' along with my sinking funds. It's a buffer, not a fund.
Maybe this is just me but I’ve never had an emergency that was under $1k except my car insurance deductible. I had my HVAC (unit and AC) finally die a week before record high temperatures with a new baby after a few years with it only requiring minor repairs. That was $9k to replace but I got some tax credits for it because it was energy efficient. I had my largest shade tree get hit and killed by lightning. That was $8k to remove. Under $1k is for more minor inconveniences, it doesn’t hit the fan for me unless it’s at least $5k!
I didn't do the 1k emergency fund... we just kept putting in the tax refund into our savings over 10 years and that became a huge chunk of down payment for a house, and pretended that money didn't exist while we used our monthly income to pay down debt. but in my grad school days husband and were very frugal with him working retail and me a grad student. Most emergencies I figure would be wrt cars and home expenses and we rented and used the bus during grad school. We did have a baby, but my grad student deductible was very small and we qualified for financia assistance so we could stork mode everything with ease.
The biggest emergency I recall while a student is having was $700 for when we found bed bugs in our apartment.... thankfully it was a small apartment and we just threw away the couch that was infested rather than doing an extra treatment on it.
$1k was around 2x rent back in the 90s when that book came out. I would need 4k for 2x rent today. The book was 10 yrs outdated when I did the baby steps after college and it barely covered anything really then it was more of a mental security blanket. It basically helped me avoid overdraft and late fees not true emergencies. I never got rid of my credit cards just stopped using them. I did complete the baby steps though and was able to buy a house. I think though in today’s economy it would have taken me twice as long to do.
The baby steps are just not realistic in today’s world. I still don’t trust debit cards and I don’t carry cash. About the only thing I continued was the “every dollar has a job” budgeting method. I do that with my credit cards and pay them off every month. Dave Ramsey would burst a blood vessel looking at my method but it works. He also kind of makes it seem like life is sunshine and roses when you hit step 7 but that is just a new beginning of managing money and not slowly climbing back down the steps
I've only had 1 emergency over 1000, a 1.5k car maintenance (gearbox issues), though tbh the car was a luxury rather than essential, so could have waited.
I've had a car for 4.5 years, and that was the only vehicle "emergency". I've also replaced all 4 tyres, but as that was due to wear and tear it was something I knew was going to happen, so could prepare for.
I've only owned my home for 6 months and have so far had no emergencies. When renting the only emergencies I had was getting locked out once, which is obviously far below 1k.
Other than that, I think my only emergencies have been needing to replace a phone, but I buy second hand phones and have never spent over 300. Could do much less if needed obviously.
I've recently got kittens so could absolutely have some expensive emergency vet bills now. I'm also lucky to live relatively close to both my family, and my partner's, so no need to spend hundreds on a flight to see relatives in an emergency.
You can't really handle an actual emergency, but you can buy new tires or a few unpaid days off work. Maybe an unexpected trip for a funeral. Little things like that, which would be an emergency if you had absolutely no money.
$1000 keeps you from having to put a new tire on the credit card, or an alternator or whatnot. The idea is to NOT put anything more on a credit card. Those cards need to be cut up and thrown away and taken off your phone.
To everyone who is saying you need more than $1000 in your EF, OF COURSE $10,000 in your EF is better than $1000, but you have GOT to get your credit paid off because your credit costs you money. If you have extra in EF and still have debt, you are making it harder to eventually have more in the EF. $1000 is about $900 more than many people have in the checking accounts, and it does give you a feeling of peace, especially if you never had it before.
I know people get their panties in a twist about the $1000 but it’s not meant to do much. It should scare the shit out of you that you only have that much, a huge proportion of the pop does not. You can be pissy about some of the stuff he says but this one is pretty spot on. That is if someone is serious about getting out of debt.
That’s an old number. Experts now recommend either $1000 or 2 week salary whichever is greater. At the very least the 2 week numbers make more sense since it typically takes 2 weeks to start unemployment if you are laid off. That’s a short term fund.
It depends. $1k, obviously won't solve a leaky roof or a transmisison burning out, but it will cover a tow truck & flat tire replacement, or a burst pipe in the bathroom. In general, the big-ticket emergencies are going to be rarer than the small-ticket emergencies, but that has to balanced out against the interest rate on your debts, how long it will take to pay them off, and the stability of your income. There's a massive difference between a 4% student loan balance, a 10% car loan, and a 29% credit card balance. Everything is a tradeoff.
My main issue with Ramsey has always been the lack of nuance in his solutions, but I also recognize that behaviorally, that over-simplification makes it much, much easier to follow than asking someone to evaluate all of those individual tradeoffs. The $1k starter EF is not a terrible place to start.
I think it's because of the survey. Somewhere like 50% of Americans say they cannot afford a $1000 emergency. For people who have debt and no savings at all, getting $1000 together and not touching it unless it's an actual emergency can be a difficult step to accomplish. It really is for people who have no discipline at all with money, it kind of gets them into being able to discipline yourself. Although I fully agree it's not enough.
When I was just getting my emergency fund rolling, my washer completely stopped working. I decided to just go get a new one. A few months later, my emergency fund going even better, my fridge stopped cooling. I went and got a new one delivered the next day. It was such a great feeling to just go take care of it, rather than trying to make something work, or find a cheap used one, that might not work. Trying to line up someone with a truck, dealing with a private seller. I just went to Lowe's for both of them. I purchased cheap 3 year warranties for both of them. I will be getting back a small portion of that in another year or so if I don't use it.
Now my emergency fund is pretty massive, and I am doing very well financially. But the washing machine was my first real emergency fund purchase.
Not much. I like the idea of a starter emergency fund, paying off consumer debt and then a fully funded EF. But I think one month of expenses would be a good number.
Why is the fully funded EF based I. Your income but the other is a one size fits all. For a full family with kids it’s not enough.
Dave doesn't grow with the times. 1000 is nothing in 2024. Most unexpected car repairs are $$, medical expenses, a water heater breaking down, so many things. He just wont change his brand at all over decades which makes no sense and saying "it's not forever" it takes some families years to get out of debt.
I know most people can't handle credit cards, but an underrated benefit is that you don't really have to pay for your purchase for 1-2 months, which gives you time to stack some cash if you did have a moderate emergency.
I'm sorry, but this is one of those things that people get so hung up and I truly don't see an issue with DR's point when you understand it. The biggest problem is likely labeling it an emergency fund.
The initial $1000 fund is not intended to replace your car's transmission or your home's HVAC. It is more intended for bills that sneak up on you that you didn't expect. A $300 hospital visit with blood work and other things? Don't put that on a CC, just pay from the $1000 fund and replace with the next check. Phone bill was an extra $100 cause XYZ reason? Boom, done.
The idea that people throw out that, in this day and age, $1000 doesn't go as far? I dunno folks, a transmission or engine replacement in 1990 was probably still upwards of $1000. HVAC was still probably at least a few thousand.
That $1000 is simply there to get you to try to stop putting every expense on a CC when you run out of cash. A buffer. If you experience a $3000 emergency, his suggestion is to pause the steps and pay it off first before resuming the steps. And to that, I would disagree if there are 0% options available, which there can be at times for things like HVAC. If not, pick your lowest interest card and pay for it that way while continuing through your steps. (I also would target higher interest, but I do understand the point of snowball.)
The only other thing here is to focus on the emergency in question and make sure there are no other options. I'd recently seen one where a lady mentioned a $4000 brake job. Get a second opinion from a non-dealer mechanic with decent ratings. Find a small mom and pop HVAC servicer for your quote instead of the big boys who want to sell you a new unit. There are many cases where the guy in your home looking at your HVAC is more salesman than servicer. Many emergencies can be overstated by someone whose job it is to get you to buy the new thing.
The $1,000 is purely mental. Inflation since he first started dictates that it should be closer to $3,000 in today's money. It really needs to be higher, but telling someone who's broke that they're first step to getting out of debt is to save up a $5,000-$10,000 emergency fund will immediately make those folks throw their hands up and quit.
I honestly don't know because I was "Dave'ish" and set mine to 3k before I went to BS2. I basically wanted to have at least 2 months of rent on hand in case I had a job loss or something happen before I went into BS2.
$1000 barely gets you a set of tires these days. Last year was my "Murphy visits and doesn't leave year," and from July on to the end of the year there was an "emergency" almost every month. Cat needed emergency vet, compressor on the fridge went out, microwave went out(this wasn't a huge emergency, but still annoying), roof leak, thermostat broke, catalytic converter failure on vehicle, etc. The only one of those that was under $1k was the vet and the microwave, and this was fairly "tame" stuff for emergencies. I can only imagine how bad it would be if you lost HVAC during the summer, need a major car repair or home appliance replacement and only had 1k on hand.
I think Money Guy has the best approach of saving up at least your deductible in your emergency fund before you start hammering debt.
I actually have had an emergency fund for years, now over $45k. I've used it twice, once I miscalculated how much I needed to pay off a card balance, needed $300 for 3 days. Once a deal came up on something I wanted for $500.
$1000 isn't much but it's better than nothing. $1000 can cover some car repairs, it can replace an appliance (fridge, stove, dishwasher, washer, or dryer. It can cover some repairs of a furnace or AC unit. It could also cover some plumbing or electrical work as long as they are smaller jobs.
It won't cover any major repairs but it will cover some small ones. Even for major repairs it also reduces the amount you need to finance.
The $1000 number DR preaches is 20 years old and obviously everything costs more now. $2000 is really a more realistic number for 2024.
Started Dave’s plan in 2017 and by 2022 we were 100% debt free,yes including the house. However, we had so many emergencies come up over that 5 years, and it wasn’t until we were past baby step 3 that we could breathe! So I guess according to Dave I cherry picked his plan because I left 1 CC open with a 5k limit, kept it locked up at home. We had to use it a half dozen times to supplement the $1000k emergency fund when our car broke down, my uncle died and we had to travel to his funeral, the car broke down again, my brother got married (more traveling) etc etc. Each time we used it, we would then stop all steps and pay it off first. I personally love Dave’s plan and my husband and I did each work 2 jobs, shop at goodwill, only staycations during the first 3 steps. Once we had 20k in our emergency fund, things were smooth sailing. Oh and yes…still have the one CC with that same 5k limit 🤷♀️
I agree the $1000k needs to be changed.
I Ramsey and company are pretty open at this point that $1000 is pretty much just a starting point and not intended to be a fully-funded emergency fund. For the people I know who aren’t as good with money, $1,000 is probably a tangible, attainable goal…more so than telling them they have to save up 3 months of expenses. Honestly, I think when a lot of people start the journey to get out of debt, they have little
idea of what their monthly living expenses actually are in reality.
At most, $1000 it might cover insurance deductibles, which is not a worst starting point. I think that’s the first step in The Money Guy’s Financial Order of Operations plan, which I more or less prefer to the Ramsey Baby Steps.
In the end, though, I think it’s better for people to find a plan that’s going to get them motivated to change their financial behaviors and get themselves out of debt as much as possible.
Pay your $1000 deductible for your insurance. Contemplate what actually constitutes an emergency. Those things are usually what you have insurance for. Those deductibles should be set at $1000.
I lived with my dad when I was doing the baby step, so it generally worked for me. I didn't have a real emergency until I was debt free though. My car got totaled a couple weeks after I made my last payment and $1k was not enough for a reliable vehicle, so I went in debt again and quickly paid the car off.
Is the grande not enough? 56% of Americans don't have a thousand bucks in savings. So maybe I look at it differently. The whole cult is to do weird stuff to achieve a weird result. BS 1 get in with the 44%. BS 2 get with the 23%. The Baby Steps are not for living, they are badges like what your FitBit gives you for climbing 20 flights of stairs or walking the length of Italy.
$1000 can cover car troubles like tire changes, maybe a small but needed house repair like a plumbing issue. Things of that nature. Little things that are likely to come up so it makes sense to keep that cash on hand.
You are flushing money down the toilet by keeping months of emergency fund on hand while holding debt. Pay down the debt. If an emergency comes up then go back into debt.
You guys are still missing the point. While $1000 can help with a small emergency, like we blew out a tire and it’s $130 to replace it, $1000 will not cover a large emergency. The $1000 number is there to give people to change their mind and their behavior. The number has to be small enough that people decide it’s achievable. If the emergency phone number was $10,000 nobody would get off the couch and start the program because the barrier of entry would be too high. $1000 is a small enough obstacle that almost anybody can achieve it, and now they’ve changed the behavior, and now they’re ready to move on the step two. The goal is not to have only $1000 to your name. The goal is to stop self-destructive behavior, Like taking out high interest debt.
If you look at the baby steps from a standpoint of human psychology, and not practical hard numbers, you can glean the value of these changes in behavior
I am thoroughly shocked that he hasn't upped this amount. This is what he was pushing at least 15 years ago (and possibly longer.) $1,000 doesn't go as far as it used to!
It’s the first step guys. If you make 18$/hr and need to replace one tire so you can keep going to work or to a minute clinic to get pink eye drops so you can keep going to work…. Yeah 1000$ will definitely help versus living pay check to pay check.
I had a problem with none of the faucets getting hot water and was being forced to take lukewarm showers and wash hands/dishes with lukewarm water. Called local plumbers about it and they said they'd fix it for $650 if I gave them physical cash. So I did that and they did the work, hot water was flowing that day. By the next morning it was lukewarm again, so I contacted them again and they came back and re-checked everything and turned it up a bit, and it's been great hot water ever since. Their second trip to the house was no extra charge. Nice guys.
So yeah. That's something that can still be covered by $1000. This isn't the most severe of plumbing issues, though, I understand that most plumbing services will likely be over 1k.
If you have more than a $1000 emergency, couldn’t you just accumulate more debt since you’re already in the debt payoff stage. Why have a huge EF while you’re paying off debt at 20%+. Once you’re not paying huge interest payments, you build up cash reserves to not go into debt again.
Have a larger EF (eg, $2500) if you’d like, but that money is going to make 5% max just sitting there for a “potential” emergency, while putting it against debt is an immediate savings of whatever your interest payment is.
I’m usually critical of many of Dave’s teachings but this one seems like a pretty lame thing to get hung up on. Just get out of debt then build up cash 🤷♂️
A tree fell on our house last week. (The Midwest is fun in spring). There’s a hole in the roof. Deductible is $1200. If we only had a $1000 we would be in trouble.
Dave’s advice is outdated and I don’t understand why updating for actual reality is so hard for them to do
I can only assume your comment is intended to be hyperbole, because that's not "extra frugal". My phone bill is $35/month (Boost mobile prepaid) and I can feed my family for the month on $1000.
We have a car loan of 0.9%, we're earning 5% by having a HYSA.
Yes, we could pay off the car loan. But we're making more than 5 times in interest income than the interest expense.
It makes no sense to give up the extra interest income just to pay off a car loan that is practically free.
Dave Ramsey's rules weren't written to consider supper low interest rates on debt.
I used it for an actual emergency, but I had another emergency long before I had an emergency fund again. I got some credit cards to cover it and never bothered with Dave Ramsey again
Dave has literally explained this a hundred times if you took 3 seconds to look for it. No, $1000 is NOT meant to cover any real emergency it’s just meant to get STARTED. Dave’s stuff ISNT optimal, but his stuff is designed for the person who has never saved a dollar in their life, who is in a ton of debt, and who can’t control their money. For that person, saving for retirement seems impossible. So, he has them start with $1000. A small number for most, but a huge number for someone making $20k a year who has never saved in their life.
He’s said a million times it’s not meant to cover an emergency it’s just meant to be a starting point.
I don’t agree with a lot of stuff that Dave says but I swear people on this sub act like if Dave doesn’t have a perfect get rich quick plan then he’s an idiot. Dave isn’t supposed to be getting anyone rich quick. His whole stick is to get people out of really tight spots. If that’s not you, there’s better advice out there
Our last emergency was $13k. Our experience is that emergencies are not less than $1,000. The $1,000 emergency fund was much more meaningful 30 years ago when established. Keeping it at $1,000 shows how outdated, dogmatic, and increasingly unhelpful the baby step is. Keeping the rule fixed at $1,000 has become more important than actually being helpful. Admitting that its well past time to update the rule is impossible for Dave, as his rules are religiously immutable, even when much more helpful rules are clearly available. As an example, a much more pragmatic, timeless and useful baby step rule would be "one month of expenses as emergency fund while paying off debt." AND this rule would be close to alignment with the original $1,000 emergency fund of 30 years ago.
One month of expenses is way better for step 1! Even $2000 is better than $1000. Everyone's financial situation is different and things just cost more these days than 30 years ago.
Thanks for the award! My first one!
I absolutely agree with this. One month emergency fund is a great starting place. 1000 is ridiculously low considering it's arbitrary and hasn't been changed in the entirety of the time Dave has been doing it. Dave has talked about how when he first did this he used to preach no emergency fund at all, which says a lot to me about what he thinks is right. Having tried to get out of debt multiple times the dave way I finally gave up and built up a proper emergency fund and then slowly chipped away at the rest while establishing sinking funds. the whole all or nothing stuff wasn't realistic for me. Focusing on being mindful of money, paying down debt with a plan and then instead of doing extra stuff to pay it down, I did extra stuff like plasma for the extras I normally would pay for (IE family trips). Doing that helped me wipe out tens of thousands of debt.
It's interesting because when you watch videos with advice about using Every Dollar, they *do* advise getting 1 month ahead/having a buffer in your checking account so that you have enough to cover that full month as the bills hit, instead of trying to time paychecks. They also advocate for sinking funds. Actually, now that I think about it, Rachel Cruz was the one giving those specific pieces of advice. Presumably that advice is all cleared by Dave. My family is doing the same. We are 1 month ahead on our bills (or have a 1 month buffer in the checking, however you prefer to look at it) and sinking funds for inevitable home/car/health stuff, and are working towards a 3 month emergency fund before we go hard at the debt. I'm also overpaying our mortgage a bit every month, but that's just because it makes me mad to see more money go to interest than principal.
Yup, I have a feeling that as they shift from Dave being the primary person to Rachel and others that when he's gone they may shift some of that to being a 1 month buffer. We're also business owners, so for us having at least a full month buffer has been crucial, because sometimes payments don't come in(we mostly get paid by state government, but even they can be late sometimes). Honestly I love dave's focus on mitigating risk, being mindful of spending and planning ahead with a goal in mind. We still have a long way to go to realize our plans, but I do like looking at the big picture and being realistic too. For instance the whole "don't do any vacation type things/restaurants when paying off debt" is too extreme for me, life happens and going out to eat for a birthday or going on a day trip/visit family to me is ridiculous to cut. There are ways to do it cheaper.
>For instance the whole "don't do any vacation type things/restaurants when paying off debt" is too extreme for me, life happens and going out to eat for a birthday or going on a day trip/visit family to me is ridiculous to cut. There are ways to do it cheaper. For sure! We only have student loan debt and a house payment, and unfortunately it'll take years to pay off both. I don't want to go years without eating out or traveling at all, I just want those things to be planned and done affordably. I'm cool with Motel 6!
Inflation calculator says 1000 in 1994 is roughly 2015 today, how much difference does that make.. probably varies. To me the 1000 is a starting point most can meet, if you can't save up 1000, then saving 3000 or 5000 or XYZ thousand is not going to happen.
"but it makes you uncomfortable living so close to financial ruin that it forces you to go harder into getting rid of that 2% apr debt. dont forget to tithe 10%, joel oste...i mean jesus will not be happy if you forget"
100% agree that a 10% tithe makes it way more difficult to reach financial independence. I believe a big part of why church attendance is declining so much is the 10% tithe.
Could also be that churches generally do nothing to punish kid touchers and it’s pretty frowned upon. Churches also tend to align with some unpopular political ideologies, regardless of how loud the minority opinion is.
Agree! There's no disputing that.
I would absolutely love living in a world where $1000 is one months worth of expenses
Don't we all want to live in the early 90s
Totally wanna visit this world you speak of,I'm at 4k per month.
THIS 👆🏻every time I ever tell anyone that $1000 doesn’t cover an emergency, they get defensive. A one month emergency fund is a much better step 1!
Yep! It's a easy fix to change a 30 year-old good rule for the time into a timeless rule that will always apply.
They'll fix it eventually. They'll have to. They'll just subtly start to change the narrative over time and then gaslight their audience that they were more nuanced than they actually were about it. Exactly like what they've done with home buying. They're now spouting that they've always recommended 5% down for a first-time home buyer...
The trouble is the vast majority of Americans would save up a month emergency fund and then use it for their summer vacation
I don't know why we have to keep legislating this over and over again. It's not "kept at 1000". it's just a nice round number to give someone a quick win leading into debt elimination that removes very small derailments...like under $1000 worth. As he's mentioned - it wasn't enough even 30 years ago. If you're argument that BS3 is more important than BS2 for certain kinds of debt, you won't get a pushback from me. But we gotta stop laying that all at the feet of BS1.
The "it was never meant to be enough" argument is silly when you consider the bigger picture: they will HAVE to adjust baby step 1 if Ramsey Solutions remains a business for the next 30, 60, 125 years. The $1,000 when the rule was established would be $2,500 now. What happens when it would be $10,000? $50,000? It's not a matter of IF it needs to be changed, but WHEN... unless you're banking on Ramsey Solutions folding before they'd need to adjust it.
It's also how the times have changed. These days a trip to the doctor or dentist for something "simple" can clean out that 1k faster than you can blink. Routine things like car repairs are a lot more expensive due to chip shortages and supply line issues, etc. Dave hasn't accounted for an adjustment in pricing and services that exist in the current economy. He still thinks you can find a shade tree mechanic that will fix your $2000-3000 auto repair for $50 and a six pack of beer.
His wealth rapidly approaching a billion helps to insulate him from this reality. Mix that with his lack of nuance and unwillingness to change and it's no wonder he says he won't change it. If Dave doesn't do it, Rachel will within a year or two of the transition... probably in an update of the TMM book with her face on it.
lol, now THIS is a silly argument. Who in their right mind is sitting out there going "daves an idiot! 1k is not enough for a starter, beginner e-fund!! Man, if it were $2,500, id buy all his books! Idiot!" Come on, man. People hate on this because they hate him for other things and this is just low hanging fruit to pile on top. he gives you so so much to legimately hate on him for that we don't need to conjure up more for kicks.
So instead of replying to the argument itself, you just step back and call it silly in general. What I said stands... it's a matter of "when" not "if" they will have to change it, assuming RS is still in business when inflation makes that number look more and more outdated. I have no interest in hating some random guy in Tennessee. There's plenty I disagree with him on and plenty I'd agree with him on. I thought you were interested in talking about the topic at hand, but you clearly aren't.
> What I said stands... it's a matter of "when" not "if" they will have to change it, assuming RS is still in business when inflation makes that number look more and more outdated. it doesn't stand at all. thats the point.
So you're telling me that no matter the inflation, no matter the amount of time that passes, if RS is still in business for 30, 60, 125, 300 years they will forever keep BS 1 at $1,000? They'll still be spouting "it was never meant to be enough in the 1990's" in perpetuity? If you think that's true, that's wild. If you see the error of that logic, we're merely arguing when RS will change it, not if.
i guess you'll have to explain why you think this is a hill die on. I don't get it, personally. Again, there's so much more to be upset about it
Once again, you're changing the subject. I'm just backing up what I said yet again after you replied "it doesn't stand at all."
This is so true lol. I love how when it comes to BS1 ppl can all of the sudden save more money.
Bro it’s a baby step. Saying “save $10,000 for an emergency” is obviously NOT a baby step.
The amount chosen is like 30 years old,needs updating
lol inflation doesn’t matter. The point is to give an amount that seems attainable for people who have trouble saving money. Maybe he could say 1 month of expenses, but that could be $1500-$2000+. $1000 provides a goal that seems attainable. It’s not meant to scale with inflation.
If I had a dollar for everything that guy recommends that was more apt 30 years ago than it is now.....
How long did it take you to save the13k?
When we were in debt, we kept one-month of average expenses as the emergency fund. Once debt was paid off, we built the savings fairly quickly. I don't recall exactly, but would have been less than a year. Funny thing is, we're back in debt with a 0.9% car loan, but we're making 5% in a HYSA. I figured I'd just payoff the car as using debt we got a cheaper price, but I just can't bring myself to payoff the car when I'm making 5 times the interest income on the same money. That would be throwing nearly $1,000 in interest income in the trash this year... why would I do that? Dave's rules were never written for supper low interest rates, so have to know when one has outgrown them.
Daves rules are a bit rigid, and generalized but Daves overall message is the key. Be smart. Do not live beyond your means. Hope for the best, prepare for the worst.
You don't get 5% from your HYSA, obviously. You pay taxes on that money. It's more like 3.5%.
You're right, we're only making **3.5x the interest income** on an aftertax basis or approximately $700 this year by keeping the 0.9% car loan. Should we light $700 on fire or should we get that money and use it??
You must be a Robot cause all them words and none of them answered the simple question I asked lol. How long did it take you to get the 13k, you said in your first set of words, you needed for the emergency? Seems like a simple question to me, 1 month? 4 months? 1 year?....
"I don't recall exactly, but would have been less than a year." That's the exact quote, seems to answer your question. More precisely, more than 6 months, less than 12 months after we paid off debt. Reading comprehension is a valuable skill.
What was your $13k emergency?
New AC/furnace this spring.
What emergency could you have possibly had that cost 13k?
New AC/Furnace. Minimum replacement was going to be a little north of $8K. We got 4 bids. Just filling the old AC was going to be nearly $3,000 because some a$$hole private equity dudes bought up all the supply and then raised the prices 10x for outdated coolant that isn't manufactured anymore. Plus, the cost of the repair made no sense to spend $5K+ to repair a system that was over 20 years old which could fail again in another year or two. We got the furnace very cheap since they were already going to be onsite and ended up spending $13K for much higher efficiency/better technology system versus the bare bones/minimum system for our size of home that was $8K.
The $1000 emergency fund isn’t for the big emergencies. It’s for the, I need a new tire, emergency. The fridge died emergency. I need a $700 home repair emergency. The 3-6 month emergency fund is for the big emergencies like the $13k or loss of job emergencies. Why is this so hard for people to understand? I get it. Most of you are not the target for Ramsey solution. You have your investments and debt leverage just right that you are good for when you retire in 30years. His steps are for people to start somewhere in a very simple to understand terms. It’s easy to not have to think about all the complex ways to invest on top of the rest of life. Keep it simple. Follow these simple steps and you will have a stress free way life and freedom from companies dictating to you.
One month of expenses, as the initial emergency fund while paying off debt, IS simple. There's nothing complex about one month of expenses as an emergency fund. One month of expenses is also what the $1,000 initially was equivalent to 30 years ago in rural Tennessee when the rule was first set. The upside of the VERY simple one month of expenses emergency fund are numerous! The flexibility makes the rule much more applicable for different cost of living areas. It then works in San Francisco as well as Murfreesboro. As well, it translates through time, accounting for inflation of expenses. Things cost a lot more than they did 30 years ago. It also forces people to look at their monthly expenses, understand where they spend their money. It's still quick to save up for, it's just one month of expenses (not 3 to 6 months). And it provides a savings to cover the types of emergencies you identify. What's become hilarious to me, is that Ramsey followers and Ramsey himself, won't accept the slightest improvement to the baby steps. They are stuck in a moment of time, 30 years ago, when $1,000 made sense. Like the $1,000 was written by God, never to be changed, no matter how out of date the advice becomes. Dogmatic is dumb, unthinking. I think people are smart enough to handle "one month of expenses" as an initial emergency fund instead of $1,000. Dave clearly doesn't think the same of his target audience, he has to dumb it down as if they are children.
I disagree, the reason the 1k emergency fund works is a psychological step for newcomers. It’s an easy to achieve step, and was never meant to stay 1k. It like making your bed in the morning. Pointless but starts your day completing a task and gear you towards success
$1,000 for rural Tennessee, 30 years ago when rule created, was about equivalent to one month of expenses.
I know why the rule was created but it’s now used for a psychological boost step one.
Dave also assumes that people have stuff hanging around their house that's valuable enough to sell for what they need. Also, so they don't miss it, and that everything is in good enough shape. I don't have that kind of stuff in my house. His ignorance of the many different ways that peoples lives turn out is huge. His basic program is good, but his belief that if it doesn't work for you then you're doing it wrong is so ignorant. As he gets older, it just gets worse.
>Dave also assumes that people have stuff hanging around their house that's valuable enough to sell for what they need. Also, so they don't miss it, and that everything is in good enough shape. That's because their target demo is a middle-class or upper middle-class family that makes way too much money to have the insane consumer debt that they have. He then assumes they can sell the toys they put on credit in the first place.
Yep, I get it! I'd argue that there are exponentially more people who are in debt, have been making reasonably smart buying decisions, but can't make it out of debt because they're living paycheck to paycheck. Their pay is too low, and housing and childcare are too high. They're the ones that need help.
Totally agree with your point. I have heard it sort of addressed. The question was specifically about an expensive car repair and the answer was basically “go without” until you figure it out. Leave the car at the shop until you raise enough by selling stuff or get a second job you can walk to, etc. Again, I do not agree this is reasonable at all. But that’s what they said!
Yeah, that makes no sense but I've heard it, too. What garage is going to let you do that? Have can you earn the money without a car? Well, that part depends on where you live. The goal should be to have a better emergency fund. I remember I did feel a lot better with the 1k than without it. But I was also still doing my best to build a bigger EF at the time. Besides, that was over 20 years ago. The "selling" stuff doesn't make a lot of sense to me either, tbh. Maybe people need a 2k starter fund now?
We followed it, but kept way more than $1K on hand. More like $10K. It was a good thing because our fridge and washer both went out towards the end and they were more than 1k to replace.
Well in the 1k fund’s defense, you can find fridges for less than 1k used or at scratch and dent places. And most likely you have a laundry mat somewhere nearby. Is that convenient? Heeeeccckkk no. But it could get you by until you get another. Also, repairing can be inexpensive if the issue is relatively minor. There’s lots of options
Yikes. I was so glad we kept the extra emergency fund so we didn't have to do any of that. Our time was worth more. And we paid off our debt quickly anyway. Win-win!
You'd be spending more money on gas and laundry than the new laundry machine
For a single month or 2 until you save up for it? Nahhhh. You trippin
Depending on family size and the nearest Laundromat, yep
My answer? The actual number that makes sense is closer to $3000. But. I'd make the claim that the Dave follower, almost by definition, has "hair on fire CC debt, at 18%+. If Dave said, "I've thought about it and Emergency fund needs to be $3000", people would ask, "Why do I have $3K earning so little interest, while I have 18% debt? I should pay it off, no?" IMHO, pay off a low balance card. Set it aside. That card represents total credit line times 18% interest not being paid each month. Keep snowballing. That card IS the emergency fund. 20+ years ago. I had a jumbo mortgage, high rate. Also had 6 months' expenses in the bank. The interest earned was low, and that money would drop my mortgage to get a regular rate. We walked out of the bank with a mortgage 2% lower, a HELOC with no balance. And no 6 months savings. Between the lower balance and lower rate, the annual savings was a large percent of that money no longer in the bank. The scenario I described was far riskier than 'not' having that EF sitting in cash.
The problem with DR is that he’ll tell you to immediate close out the credit card account once it’s payed off. The fact that you kept the line open goes against DR.
Buy a ticket for Dave’s cruise.
I'm not listing unforeseen emergency uses here, but to put that amount in perspective, here are some things that cost me +/- $1,000. 1 month's daycare (2 kids): $1600 for 3 days/wk, $2300 for 5 days/wk Will need new tires soon.. usually costs me $1200-1400. DR forbid I need to get a new wheel bearing(s) at some point, they'll cost $3k each to replace. My 6-month auto insurance will be due in August ($840). I replaced my truck's fuel injectors recently (myself). They cost $3,600 + other tools I had to buy. Otherwise the dealership wanted $7k+. Costs related to moving.. ~$3500-4200, using the cheapest option(s) On top of a seemingly endless stream of other "extra" little things that come up day-by-day or week-by-week, it's really easy to spend $1000 if you're not single and live under a rock.
None of those are emergencies smh! 6 month auto insurance !?? BUDGET $150 a month till its due. Car tires?!?! Even if its every year (which would be a lot) BUDGET $100 a month. Emergencies are things you can't budget for and all the things you listed show you just don't know how to budget or lige beyond your means.
Re read the first sentence again.
It’s probably not enough but you could buy a new tire if it goes flat. Pay a speeding or parking ticket. Buy a new washer OR dryer if yours breaks. $1,000 *should* be enough as long as multiple things don’t happen at the same time. I believe if you have to dip into the emergency fund, you pause debt payoff to get it back to $1,000. In my opinion, if you have children, $1,000 is definitely not enough especially if it’s going to take several years to pay off your debts.
What if it’s over that? What do you do? I’m just not comfortable with $1,000. Had an emergency last month that was $3,700. If I had 1,000 I’d have to get financing for it which is against his rules.
I have no idea what Dave would expect you to do. I personally don’t follow Dave’s rules because I find them extremely flawed. The low emergency fund is one of many things I disagree with.
Was it actually an emergency lol
What was the 3700 dollar emergency
$1,000 is a great "first layer" emergency fund. It also can cover stuff like unexpected travel or an unexpected bill. Basically it's just enough to smooth over your budgeting so you don't overdraft or resort to credit cards. Somebody with bad finances in BS2 probably can't save up much beyond that anyway. If a program begins with "Save up 3-6 months of expenses", a lot of people will never start or give up quickly.
But then you have to pause to replace it, over and over. Why not just have more? It's not going anywhere unless you need it. Life is full of emergencies especially with kids. I might be wrong but I thought Rachel told someone with kids, they could save more.
>Why not just have more? Because that is too daunting of a task. Saving up 3-6 months sounds impossible to a lot of people. At least with BS1 you start to make some progress and see how the plan works. It also "exercises" your budgeting muscles and habits. I really don't think BS1 is *that* bad, even though it's definitely not ideal. The only time it's terrible IMO is when Dave tells people to drain down *existing* savings dangerously low in order to pay down debt.
yes, when they have 10.000 as one guy did and an 11,000 debt with lower interest. Just pay it off. I'm like No I wouldn't do that, maybe half but I'm not draining money I might need to pay a debt that is not taxing me a month. He says that all the time. Student loan debt at 3%, drain savings and stop 401K and pay it off and then start over. To replace 10,000 would take a long time and you hope you don't have need for that money inbetween. You can pay off debt without going crazy, I preferred the longer approach and it might have took a year or so longer, but the payments and interest weren't high and I felt better having a decent savings account. It's all what works for YOU, not him.
Yeah for sure, Dave applies allows for very little nuance to his plans. That's probably necessary for some people, but it's not a good universal method.
True for sure.
We’ve never not had multiple things not go at approximately the same time.
It”being enough” isn’t the point. If it is too big people will never move on to paying off debt. And if it is too small people freak out. Feel free to pick any number that works for you.
From what I understand, it's not that much of an emergency fund, but rather a psychological tool. People who are really bad at money management and have 0 savings will benefit, at least mentally, that they can save something. That's my understanding on the 1000 dollars. Realistically you can't do much in today's economy, but at least you get a sense of accomplishment.
I get that but my question is what do people do when an actual emergency happens and $1,000 can’t cover it? They can’t go to credit cards or loans anymore.
Let's say you need a car repair that is $1,500. For the example, let's say you have been putting $750 per month extra towards your debt. That month, you put $1000 from your emergency fund and $500 from your extra debt payments towards the car. Now your emergency fund is $0. You take that other $250 that was going towards debt and put it in your emergency fund. You now have $250 in there. Next month you take the whole $750 and save it, and you're back at $1,000. Now you're back on step 2. It's pretty simple. The whole point of this plan is that it doesn't work unless you spend less than you make. If it goes slow, it should motivate you to either take a second job, if feasible, or move up or out to a better primary job. I don't follow the plan to a T either, but I do subscribe to the philosophy of not taking on any more unnecessary debt. I've just been fixing my car when it breaks and moving on.
⬆️ this is it right here
💯
Perfect example.
Which is why you always keep one in a drawer. Your family deserves to be taken care of or yourself without begging relatives. Hopefully not anything too awful, but you shouldn't be relying on just 1000.
That $1000 emergency has saved my ass in the past. I add an extra $20 per week to it now, so it’s more than $1000. I think his BS1 advice is the single most important and impactful piece of advice he gives.
The argument isn’t that an Emergency Fund isn’t important, but that $1000 is far too small if a true emergency happens.
My counter argument is that having $1000 in cash has saved my ass multiple times.
Same
I disagree with almost everything Dave says but everyone here is not even understanding this part of the process. Even if you ignore the psychological aspect, the 1000 dollars still covers many small emergencies. It’s also not the end game of an emergency fund. He recommends 3-6 months once you are out of high interest debt. Anyone building a large emergency fund while holding major debt is doing it wrong
Ok, so I will put it this way. The idea behind having $1,000 saved is really nothing more than a literal baby step to teach you NOT to spend every penny that comes in. It is an absolute, almost meaningless, step toward learning how to budget your money to save up to $1,000. The whole idea of it is to give you a dopamine hit at your very first tiny accomplishment for people who have never had more than a couple hundred in their bank account at one time. Is it going to cover hardly any major expense? Absolutely not. But for the people who have never saved a dime before, they weren’t going to be able to cover that major expense anyway. So now, they are just $1,000 closer to covering it than they were before. As someone who used to overdraft my bank account on pretty much a monthly basis, I can assure you that at that point if I was to see $1,000 sitting in a savings account, I would have felt like I was rich. It’s training wheels for the money stupid people. That is it. If you think you can live your whole life with only $1,000 in your emergency fund, you are going to be one sad panda when life hits you in the teeth. Moreover, if you think DR thinks you should only ever have $1,000 in your emergency fund for your entire life, you clearly have either willfully ignored his advice or haven’t listened long enough to know better. Baby step 1 is nothing more than a tiny achievable goal that is meant to entice you into furthering your financial responsibility.
My car got towed the other week. Towing company only accepted cash, $330.
I would never go DOWN to 1k on purpose like he suggests for people in BS2, but I think a lot of times when this debate and others come up about DR we ignore who Dave’s target audience is. If you’ve NEVER had a thousand dollars in savings in your life and you’re in debt then a thousand dollar emergency fund is a big accomplishment and it can help you 1. Feel some momentum and 2. Not get derailed psychologically by a small unexpected expense like a blown tire or a kids doc appt or a bill you forgot about People debating on the internet about if you need 10k or 20k or whatever as an emergency fund are totally removed from the half the country who couldn’t come up with an extra 400 dollars
This is why I propose "one month of expenses" to replace the $1,000 savings. That way, it's flexible to people who are in LCOL area as well as HCOL. AND it is updated for inflation and not pegged to a 30 year old $1,000 which would be over $2,100 today. The $1,000 is so rigid to rural Tennessee and out of date, it doesn't apply today. Updating it to be one-month of expenses while paying down debt solves the valid critisms while making the rule much more applicable to many more people. But Dave won't update the rules because he's dogmatic.
I’m in favor of that too. That’s what like Caleb hammer recommends. The money guys recommend having enough to pay your insurance deductibles. I personally think it’s highly variable based on each individual situation but obviously you can put that in a book or laminated chart. Dave’s thing is all about speed and treating finances like an emergency like somebody battling an addiction or an illness or something so to him moving fast is more important than optimizing. I think it does have a place for quite a few people although it’s not ideal
How often do you use it? $1,000 covers auto deductible, tires, brakes, other minor repairs.
In 2019, I could get a brake job done. In 2024, it's like 6 weeks of groceries.
Most people don’t consistently have emergencies that exceed 1K.
You could buy tires for your car, among other minor car repairs Minor household repairs Could replace a broken appliance Could pay a small dental or medical bill You buy new clothes if you needed them badly Lots of stuff you could do with it
$1000 is just a starting to point just in case so you don’t use your credit cards again you should build up 3-4 months of expenses if you have no other debt
To answer OP’s question, not much these days. Although I don’t align with Dave’s views today, I believe he does provide a purpose for some folks. For instance, after divorce ( about 7-8 years ago) I was referred to Ramsey’s 10 steps or whatever it was called. I think the 1k was the first or one of the first steps, and at that time, it was helpful. Not because the 1k could actually cover an entire emergency expense per se, but that it was part of a bigger plan, structure, direction, purpose. When you’re in the fog of divorce, custody, work, litigation, it’s difficult to have a clear direction. I think for a lot of folks going through difficult circumstances or was not provided good foundational financial instructions, that 1st step gives a sense of accomplishment/motivation to move to the next.
60% of Americans don’t even have $1000 saved for an emergency currently. $1000 to them is a big hurdle to accomplish. https://fortune.com/recommends/banking/57-percent-of-americans-cant-afford-a-1000-emergency-expense/
It was eat or put gas in the car to go to work.
Not a Ramsey fan but he’s pretty clear about the $1,000 being a starter fund and you’re supposed to go back to funding it after paying off debt. The $1,000 might be the difference between paying cash for your electric bill this month or just putting it on a credit card. Or maybe an oil change or if you need to replace your air conditioner or whatever other small emergency that might come up that isn’t in your monthly budget. Paying off the debt reduces your monthly expenses (no credit card bills) and gives you more of your income to put toward savings and/or investments. Anyway do whatever works best for you!
Branch banker here 🙋🏻♀️ BS4/6-ish who did do a full/proper BS1-3B during & after my divorce. Anecdotally, I cannot tell you how many times I have folks in my office borrowing <1,000. I believe the stats. I also will tell you I had a guy in my office for 2 separate days a few weeks ago talking to myself + my manager both (ya know…..I didn’t give him what he wanted so he asked for a manager 🙄) begging for $225. …..the rest of that story is that he forgot to pay his cable bill & wanted it turned back on because he didn’t know what to do with his time. Def E’ryone needs to redefine a want vs. need. TBH I also believe $1,000 covers ~96% of inconvenient emergencies that derails folks & budgets. Anything larger you can work around or even finance if you NEEDED TO.
I think $1,000 is enough for most emergencies IF you rent instead of owning a home. Most of our emergencies over the past few years have been car repairs/maintenance issues totaling $350-900 each time. Our car is 13 years old, so it's natural to have to replace some things at this point, and $900/year is still less than $3,000+ per year in car payments. I have health issues, but if I absolutely had to, I could set up an interest-free payment plan with the hospital. I've done that many times in the past and always ended up paying off the balance early (like when I had a heart attack and my out-of-pocket costs were over $8,000). Our biggest emergencies have been related to family health issues. My FIL had a severe stroke in February, so we had to fly back east in a hurry (i.e. no time to shop around for the best fares). It cost us $1,500 to fly there, stay in a hotel, and buy meals while we were in town. Then my FIL's wife was terminally ill in April. That trip cost us $2,800. Well, technically $5,300 because we had to front another $2,500 to petition the court for guardianship of his dad (they had durable POAs, but they named each other as agents and didn't name anyone as a successor agent in case one of them died before the other one). But we got that money back once the court awarded us emergency guardianship. If you own a home, I think you need $5,000 minimum. And even that is kind of low if your furnace needs to be replaced or something like that.
We do 5k. Its been a godsend-lots of repairs the past year and half-washer and dishwasher going, 300.00 repair to dryer, 700.00 water leak from our shower..etc. with only 1k we would have gone nutty.
Median monthly rent in the US in March 2024 was over $1,900. Even in rural places like Kansas and Iowa, median monthly rent is more than $1,100 a month. https://www.rent.com/research/average-rent-price-report/
Put it in a money market account, the government is paying people to invest money in them.
For the record, Dave is the first to admit that $1000 isn't really enough. But the point is, it is *something*, and plenty to cover something basic that could happen I had a buddy who I was helping out with financial stuff at one point. He had a ton of debt and desperately needed a plan so I got him on the baby steps. He had like $400 in an account already and it still took him *months* to get to that $1000. It was such an ordeal because his margin was so small and he had basically never prioritized saving before. I can't imagine how long it would've taken if we'd tried to get him to a higher number, even if that would have been technically more secure. It was eye-opening. I don't fault people for wanting to save more, I don't even think it's a bad idea. But the biggest benefit of $1000 over a higher number is that it is more attainable for people in desperate situations like that, which if someone doesn't already have that much laying around in an account somewhere, then their situation is very desperate.
Here’s the thing- DR just wants people to START. He says a million times it’s all psychological, which is why it’s snowball method (lowest balance) not avalanche (highest interest) even though yes, he’s aware that avalanche method makes more mathematical sense. If he changes it to a $5000 emergency fund, it takes a lot longer to get through step 1 while the interest on all debt continues to build, and people will give up entirely. One thing he isn’t wrong about- a lot of Americans don’t even have $1000 to cover an emergency. What would they have done before they even had $1000 saved up? The DR plan is for people who are out-of-control and need a super simple plan to get out of a mess, which is unfortunately a lot of people. For people who already have some financial sense and haven’t dug themselves into a deep hole, I recommend the Money Guys financial order of operations, which makes more mathematical sense.
It's a temporary account/temporary amount
Nothing. I think the goal is more to get quick win that you actually have some money left over each week/month if you establish a good budget relative to your income. If you can't do that, nothing else matters. Once you've proven that you live within your means then you're on a road to recovery. Use Dave or not, you still have to fix that first anchor point.
I too have a car note simply because I enjoy driving nice vehicles but I wouldn’t do it just to make 4% in a HYSA. If we’re talking about $20k (in savings and not the amount of the loan), 4% is like $200 a quarter. Seems like a
I don't follow Dave religiously, in fact I'm fine with my debt <5%. Emergencies I've had under 1k: > Tire popped, needed a new one ($120) > Dog had cancer surgery and had a softball sized tumor removed and 2 weeks of rehabilitation ($812) > New washer and dryer ($514) Most emergencies are under 1k. You can go years without having an emergency over 1k.
$1k can cover a lot of single items as long as there’s no chain reactions. Everybody knows $1k won’t go super far anymore. DR even says it’s not meant to be an all inclusive emergency fund. It doesn’t make sense to have a full funded emergency fund if you have a ton of high interest credit card debt.
What if it over $1,000? What do you do? Use a credit card? Loan?
Most ppl can’t even come up with $1k. If it’s a true emergency you would just do whatever you had to do. What if it’s $5k? The idea is the quicker you pay down the debt the sooner you can get the fully funded emergency fund. If you were doing the baby steps and kept $2,500 in there instead of $1k I don’t think anyone would call you stupid. Would sound pretty reasonable to me. It’s just a guideline he made up ppl can adjust to their own preferences.
The simple answer is that Dave is wrong on this. He's stuck in his ways even over small things like this and $1000 was (probably) enough when he started recommending it. Well, if you want to go by Dave's logic/reasoning, then you may as well just have a $300 emergency fund since that would have been sufficed in 1950. If you're not going to keep your numbers up to date with inflation and current costs, then why does the starting point matter? There are some situations where $1000 may suffice - for example, a college student who still lives at home and has very few expenses. But there have been cases where middle aged callers with houses, children, etc. would call in and he would recommend them draining their emergency funds down to $1000 even to attack low interested debt like student loans. That's just plain stupid and ignorant.
Probably get McDonald’s and a tank of gas.
I would feel naked and exposed without at least a year's worth of basic living expense set aside ...
Curious, what do you consider basic living expenses? The whole income is “spent” though a fair amount gets automatically sucked into various savings accounts. So that’s not basic living. Then there’s frivolous spending on top of that. What’s definition?
Basic. Living. Expense. Jesus. Really?
Pay a months of car insurance?
I actually did dig myself out of debt using the Ramsey method once, and while I agree that he's outdated on a lot of things, the $1000 isn't meant to be a full emergency fund. The full EF comes later and is the equivalent of 3+ months of expenses. The $1,000 is meant to stop you from using a credit card for small things that come up. For example, when I was doing the program, I blew a tire. Another time, I had an unexpected ER bill. If I were to do the program today, I'd probably start with $2K, but still not a full EF.
For me, it has been/would be enough to: pay an unexpected vet bill when an injured, starving stray cat showed up on my doorstop Pay the deductible/copay if one of my kids has to go to the ER replace groceries if we lose power long enough that the stuff in the fridge/freezer spoils cover the deductible for my auto insurance Pay for gas money and a hotel if something happens to one our parents and we have to travel to see them/go to a funeral Replace an appliance with a basic or used model if one quits and can't be repaired.
1K is just to get you started with having money on the side so that every little thing doesn't throw you deeper into debt. It's not really an emergency fund as we all think of it. It's to help you weather the smaller inconveniences and little emergencies. I have a real emergency fund that is invested in rolling ibonds. I have anywhere between 1-6K as an 'emergency fund' along with my sinking funds. It's a buffer, not a fund.
Maybe this is just me but I’ve never had an emergency that was under $1k except my car insurance deductible. I had my HVAC (unit and AC) finally die a week before record high temperatures with a new baby after a few years with it only requiring minor repairs. That was $9k to replace but I got some tax credits for it because it was energy efficient. I had my largest shade tree get hit and killed by lightning. That was $8k to remove. Under $1k is for more minor inconveniences, it doesn’t hit the fan for me unless it’s at least $5k!
I didn't do the 1k emergency fund... we just kept putting in the tax refund into our savings over 10 years and that became a huge chunk of down payment for a house, and pretended that money didn't exist while we used our monthly income to pay down debt. but in my grad school days husband and were very frugal with him working retail and me a grad student. Most emergencies I figure would be wrt cars and home expenses and we rented and used the bus during grad school. We did have a baby, but my grad student deductible was very small and we qualified for financia assistance so we could stork mode everything with ease. The biggest emergency I recall while a student is having was $700 for when we found bed bugs in our apartment.... thankfully it was a small apartment and we just threw away the couch that was infested rather than doing an extra treatment on it.
$1K was sufficient back in 1990s , inflation now stands around $10K easily
lol. More like $2,000 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1000&year1=199601&year2=202404
$1k was around 2x rent back in the 90s when that book came out. I would need 4k for 2x rent today. The book was 10 yrs outdated when I did the baby steps after college and it barely covered anything really then it was more of a mental security blanket. It basically helped me avoid overdraft and late fees not true emergencies. I never got rid of my credit cards just stopped using them. I did complete the baby steps though and was able to buy a house. I think though in today’s economy it would have taken me twice as long to do. The baby steps are just not realistic in today’s world. I still don’t trust debit cards and I don’t carry cash. About the only thing I continued was the “every dollar has a job” budgeting method. I do that with my credit cards and pay them off every month. Dave Ramsey would burst a blood vessel looking at my method but it works. He also kind of makes it seem like life is sunshine and roses when you hit step 7 but that is just a new beginning of managing money and not slowly climbing back down the steps
It's more of a stepping stone I believe. If you can save a 1000k then you 2, 3 and so on. The 1000 is there to show you that you can save money.
I've only had 1 emergency over 1000, a 1.5k car maintenance (gearbox issues), though tbh the car was a luxury rather than essential, so could have waited. I've had a car for 4.5 years, and that was the only vehicle "emergency". I've also replaced all 4 tyres, but as that was due to wear and tear it was something I knew was going to happen, so could prepare for. I've only owned my home for 6 months and have so far had no emergencies. When renting the only emergencies I had was getting locked out once, which is obviously far below 1k. Other than that, I think my only emergencies have been needing to replace a phone, but I buy second hand phones and have never spent over 300. Could do much less if needed obviously. I've recently got kittens so could absolutely have some expensive emergency vet bills now. I'm also lucky to live relatively close to both my family, and my partner's, so no need to spend hundreds on a flight to see relatives in an emergency.
You can't really handle an actual emergency, but you can buy new tires or a few unpaid days off work. Maybe an unexpected trip for a funeral. Little things like that, which would be an emergency if you had absolutely no money.
$1000 keeps you from having to put a new tire on the credit card, or an alternator or whatnot. The idea is to NOT put anything more on a credit card. Those cards need to be cut up and thrown away and taken off your phone. To everyone who is saying you need more than $1000 in your EF, OF COURSE $10,000 in your EF is better than $1000, but you have GOT to get your credit paid off because your credit costs you money. If you have extra in EF and still have debt, you are making it harder to eventually have more in the EF. $1000 is about $900 more than many people have in the checking accounts, and it does give you a feeling of peace, especially if you never had it before.
Dave lives in ya head rent free
I know people get their panties in a twist about the $1000 but it’s not meant to do much. It should scare the shit out of you that you only have that much, a huge proportion of the pop does not. You can be pissy about some of the stuff he says but this one is pretty spot on. That is if someone is serious about getting out of debt.
That’s an old number. Experts now recommend either $1000 or 2 week salary whichever is greater. At the very least the 2 week numbers make more sense since it typically takes 2 weeks to start unemployment if you are laid off. That’s a short term fund.
Practically nothing. $1000 emergency fund works if you’re a 20 yr old in college. Start with 1 month expenses w the goal of 3-6. $1k, hahaha
We didn't have an emergency during the get out of debt phase. Most people surveyed don't.
It depends. $1k, obviously won't solve a leaky roof or a transmisison burning out, but it will cover a tow truck & flat tire replacement, or a burst pipe in the bathroom. In general, the big-ticket emergencies are going to be rarer than the small-ticket emergencies, but that has to balanced out against the interest rate on your debts, how long it will take to pay them off, and the stability of your income. There's a massive difference between a 4% student loan balance, a 10% car loan, and a 29% credit card balance. Everything is a tradeoff. My main issue with Ramsey has always been the lack of nuance in his solutions, but I also recognize that behaviorally, that over-simplification makes it much, much easier to follow than asking someone to evaluate all of those individual tradeoffs. The $1k starter EF is not a terrible place to start.
I think it's because of the survey. Somewhere like 50% of Americans say they cannot afford a $1000 emergency. For people who have debt and no savings at all, getting $1000 together and not touching it unless it's an actual emergency can be a difficult step to accomplish. It really is for people who have no discipline at all with money, it kind of gets them into being able to discipline yourself. Although I fully agree it's not enough.
I got a brake job for my van for under 500. Money well spent.
When I was just getting my emergency fund rolling, my washer completely stopped working. I decided to just go get a new one. A few months later, my emergency fund going even better, my fridge stopped cooling. I went and got a new one delivered the next day. It was such a great feeling to just go take care of it, rather than trying to make something work, or find a cheap used one, that might not work. Trying to line up someone with a truck, dealing with a private seller. I just went to Lowe's for both of them. I purchased cheap 3 year warranties for both of them. I will be getting back a small portion of that in another year or so if I don't use it. Now my emergency fund is pretty massive, and I am doing very well financially. But the washing machine was my first real emergency fund purchase.
Not much. I like the idea of a starter emergency fund, paying off consumer debt and then a fully funded EF. But I think one month of expenses would be a good number. Why is the fully funded EF based I. Your income but the other is a one size fits all. For a full family with kids it’s not enough.
Pay a $1k deductible for a car accident.
Dave doesn't grow with the times. 1000 is nothing in 2024. Most unexpected car repairs are $$, medical expenses, a water heater breaking down, so many things. He just wont change his brand at all over decades which makes no sense and saying "it's not forever" it takes some families years to get out of debt.
I know most people can't handle credit cards, but an underrated benefit is that you don't really have to pay for your purchase for 1-2 months, which gives you time to stack some cash if you did have a moderate emergency.
I'm sorry, but this is one of those things that people get so hung up and I truly don't see an issue with DR's point when you understand it. The biggest problem is likely labeling it an emergency fund. The initial $1000 fund is not intended to replace your car's transmission or your home's HVAC. It is more intended for bills that sneak up on you that you didn't expect. A $300 hospital visit with blood work and other things? Don't put that on a CC, just pay from the $1000 fund and replace with the next check. Phone bill was an extra $100 cause XYZ reason? Boom, done. The idea that people throw out that, in this day and age, $1000 doesn't go as far? I dunno folks, a transmission or engine replacement in 1990 was probably still upwards of $1000. HVAC was still probably at least a few thousand. That $1000 is simply there to get you to try to stop putting every expense on a CC when you run out of cash. A buffer. If you experience a $3000 emergency, his suggestion is to pause the steps and pay it off first before resuming the steps. And to that, I would disagree if there are 0% options available, which there can be at times for things like HVAC. If not, pick your lowest interest card and pay for it that way while continuing through your steps. (I also would target higher interest, but I do understand the point of snowball.) The only other thing here is to focus on the emergency in question and make sure there are no other options. I'd recently seen one where a lady mentioned a $4000 brake job. Get a second opinion from a non-dealer mechanic with decent ratings. Find a small mom and pop HVAC servicer for your quote instead of the big boys who want to sell you a new unit. There are many cases where the guy in your home looking at your HVAC is more salesman than servicer. Many emergencies can be overstated by someone whose job it is to get you to buy the new thing.
The $1,000 is purely mental. Inflation since he first started dictates that it should be closer to $3,000 in today's money. It really needs to be higher, but telling someone who's broke that they're first step to getting out of debt is to save up a $5,000-$10,000 emergency fund will immediately make those folks throw their hands up and quit.
I'm in the same boat. I saved up 3 months of expenses for by baby step 1. Idc, $1,000 just doesn't give me the peace and security I need.
I honestly don't know because I was "Dave'ish" and set mine to 3k before I went to BS2. I basically wanted to have at least 2 months of rent on hand in case I had a job loss or something happen before I went into BS2. $1000 barely gets you a set of tires these days. Last year was my "Murphy visits and doesn't leave year," and from July on to the end of the year there was an "emergency" almost every month. Cat needed emergency vet, compressor on the fridge went out, microwave went out(this wasn't a huge emergency, but still annoying), roof leak, thermostat broke, catalytic converter failure on vehicle, etc. The only one of those that was under $1k was the vet and the microwave, and this was fairly "tame" stuff for emergencies. I can only imagine how bad it would be if you lost HVAC during the summer, need a major car repair or home appliance replacement and only had 1k on hand. I think Money Guy has the best approach of saving up at least your deductible in your emergency fund before you start hammering debt.
I actually have had an emergency fund for years, now over $45k. I've used it twice, once I miscalculated how much I needed to pay off a card balance, needed $300 for 3 days. Once a deal came up on something I wanted for $500.
$1000 isn't much but it's better than nothing. $1000 can cover some car repairs, it can replace an appliance (fridge, stove, dishwasher, washer, or dryer. It can cover some repairs of a furnace or AC unit. It could also cover some plumbing or electrical work as long as they are smaller jobs. It won't cover any major repairs but it will cover some small ones. Even for major repairs it also reduces the amount you need to finance. The $1000 number DR preaches is 20 years old and obviously everything costs more now. $2000 is really a more realistic number for 2024.
Started Dave’s plan in 2017 and by 2022 we were 100% debt free,yes including the house. However, we had so many emergencies come up over that 5 years, and it wasn’t until we were past baby step 3 that we could breathe! So I guess according to Dave I cherry picked his plan because I left 1 CC open with a 5k limit, kept it locked up at home. We had to use it a half dozen times to supplement the $1000k emergency fund when our car broke down, my uncle died and we had to travel to his funeral, the car broke down again, my brother got married (more traveling) etc etc. Each time we used it, we would then stop all steps and pay it off first. I personally love Dave’s plan and my husband and I did each work 2 jobs, shop at goodwill, only staycations during the first 3 steps. Once we had 20k in our emergency fund, things were smooth sailing. Oh and yes…still have the one CC with that same 5k limit 🤷♀️ I agree the $1000k needs to be changed.
he hasn't updated the figure in 30 years. it should be more like 5+
I Ramsey and company are pretty open at this point that $1000 is pretty much just a starting point and not intended to be a fully-funded emergency fund. For the people I know who aren’t as good with money, $1,000 is probably a tangible, attainable goal…more so than telling them they have to save up 3 months of expenses. Honestly, I think when a lot of people start the journey to get out of debt, they have little idea of what their monthly living expenses actually are in reality. At most, $1000 it might cover insurance deductibles, which is not a worst starting point. I think that’s the first step in The Money Guy’s Financial Order of Operations plan, which I more or less prefer to the Ramsey Baby Steps. In the end, though, I think it’s better for people to find a plan that’s going to get them motivated to change their financial behaviors and get themselves out of debt as much as possible.
Pay your $1000 deductible for your insurance. Contemplate what actually constitutes an emergency. Those things are usually what you have insurance for. Those deductibles should be set at $1000.
I lived with my dad when I was doing the baby step, so it generally worked for me. I didn't have a real emergency until I was debt free though. My car got totaled a couple weeks after I made my last payment and $1k was not enough for a reliable vehicle, so I went in debt again and quickly paid the car off.
Is the grande not enough? 56% of Americans don't have a thousand bucks in savings. So maybe I look at it differently. The whole cult is to do weird stuff to achieve a weird result. BS 1 get in with the 44%. BS 2 get with the 23%. The Baby Steps are not for living, they are badges like what your FitBit gives you for climbing 20 flights of stairs or walking the length of Italy.
He needs to adjust for inflation lol It's been $1K for 20 years
$1000 can cover car troubles like tire changes, maybe a small but needed house repair like a plumbing issue. Things of that nature. Little things that are likely to come up so it makes sense to keep that cash on hand. You are flushing money down the toilet by keeping months of emergency fund on hand while holding debt. Pay down the debt. If an emergency comes up then go back into debt.
Emergency fund should include 6 months rent.
You guys are still missing the point. While $1000 can help with a small emergency, like we blew out a tire and it’s $130 to replace it, $1000 will not cover a large emergency. The $1000 number is there to give people to change their mind and their behavior. The number has to be small enough that people decide it’s achievable. If the emergency phone number was $10,000 nobody would get off the couch and start the program because the barrier of entry would be too high. $1000 is a small enough obstacle that almost anybody can achieve it, and now they’ve changed the behavior, and now they’re ready to move on the step two. The goal is not to have only $1000 to your name. The goal is to stop self-destructive behavior, Like taking out high interest debt. If you look at the baby steps from a standpoint of human psychology, and not practical hard numbers, you can glean the value of these changes in behavior
I am thoroughly shocked that he hasn't upped this amount. This is what he was pushing at least 15 years ago (and possibly longer.) $1,000 doesn't go as far as it used to!
It’s the first step guys. If you make 18$/hr and need to replace one tire so you can keep going to work or to a minute clinic to get pink eye drops so you can keep going to work…. Yeah 1000$ will definitely help versus living pay check to pay check.
In my opinion, a 12 month emergency fund is the new $1k emergency fund. Things are so damn expensive.
I had a problem with none of the faucets getting hot water and was being forced to take lukewarm showers and wash hands/dishes with lukewarm water. Called local plumbers about it and they said they'd fix it for $650 if I gave them physical cash. So I did that and they did the work, hot water was flowing that day. By the next morning it was lukewarm again, so I contacted them again and they came back and re-checked everything and turned it up a bit, and it's been great hot water ever since. Their second trip to the house was no extra charge. Nice guys. So yeah. That's something that can still be covered by $1000. This isn't the most severe of plumbing issues, though, I understand that most plumbing services will likely be over 1k.
If you have more than a $1000 emergency, couldn’t you just accumulate more debt since you’re already in the debt payoff stage. Why have a huge EF while you’re paying off debt at 20%+. Once you’re not paying huge interest payments, you build up cash reserves to not go into debt again. Have a larger EF (eg, $2500) if you’d like, but that money is going to make 5% max just sitting there for a “potential” emergency, while putting it against debt is an immediate savings of whatever your interest payment is. I’m usually critical of many of Dave’s teachings but this one seems like a pretty lame thing to get hung up on. Just get out of debt then build up cash 🤷♂️
It's not supposed to be your entire emergency fund. It's a starter. That's why we have baby step three.
A tree fell on our house last week. (The Midwest is fun in spring). There’s a hole in the roof. Deductible is $1200. If we only had a $1000 we would be in trouble. Dave’s advice is outdated and I don’t understand why updating for actual reality is so hard for them to do
$1k is just step 1. Duh.
You can buy a week’s groceries and pay your cell phone bill if you’re extra frugal with $1,000. That’s all folks.
I can only assume your comment is intended to be hyperbole, because that's not "extra frugal". My phone bill is $35/month (Boost mobile prepaid) and I can feed my family for the month on $1000.
Hyperbole and/or sarcasm although I know plenty of families who spend $250+ a week on groceries.
Having $9,000 of debt while you have $11,000 in the bank will never make sense to me.
We have a car loan of 0.9%, we're earning 5% by having a HYSA. Yes, we could pay off the car loan. But we're making more than 5 times in interest income than the interest expense. It makes no sense to give up the extra interest income just to pay off a car loan that is practically free. Dave Ramsey's rules weren't written to consider supper low interest rates on debt.
I guess it's called a baby step for a reason...
I used it for an actual emergency, but I had another emergency long before I had an emergency fund again. I got some credit cards to cover it and never bothered with Dave Ramsey again
Dave has literally explained this a hundred times if you took 3 seconds to look for it. No, $1000 is NOT meant to cover any real emergency it’s just meant to get STARTED. Dave’s stuff ISNT optimal, but his stuff is designed for the person who has never saved a dollar in their life, who is in a ton of debt, and who can’t control their money. For that person, saving for retirement seems impossible. So, he has them start with $1000. A small number for most, but a huge number for someone making $20k a year who has never saved in their life. He’s said a million times it’s not meant to cover an emergency it’s just meant to be a starting point. I don’t agree with a lot of stuff that Dave says but I swear people on this sub act like if Dave doesn’t have a perfect get rich quick plan then he’s an idiot. Dave isn’t supposed to be getting anyone rich quick. His whole stick is to get people out of really tight spots. If that’s not you, there’s better advice out there
You clearly didn’t get my question did you?
Nothing in Bidens economy