Dave Ramsey is a money-management expert, national radio personality and best-selling author. His column appears regularly in American Profile.
In your plan, you talk about “Baby Step 3” as saving enough to have three to six months of expenses in an emergency fund. My husband and I are wondering how to determine whether you need to be on the low end or high end of that range?
Dave Says: Lots of times in a marriage, you’ll have a situation where one person wants to save more while the other is excited to move on toward investing. Technically, neither is wrong, so the emergency fund really deals with someone’s own personal level of peace. Remember Murphy’s Law, and how it says that if something can go wrong, it will go wrong? Your emergency fund is Murphy repellent. Some people just want to make sure Murphy doesn’t knock on the door, while others want to ensure he stays on the other side of the country!
There are always practical considerations you can use to determine the amount of your emergency fund. If you both have very stable jobs, you’ll probably be OK saving up three or four months of expenses. But if just one of you works outside the home, or if one is self-employed or on commission, leaning toward the six-month side is probably a good idea. Plus, you can always compromise. Start out with three months, but add a little every once in a while until you reach a point where you’re both comfortable.