Yesterday I gave a quick recap of Dave Ramsey’s baby steps as I understand them. Over the next couple of days I am going to expand upon each one, giving you my opinions as we proceed. The decision to become debt free should not be taken lightly. Each step is difficult and requires at least some sacrifice.

Baby Step #1 – Save $1,000 Fast

In order to become debt free you must stop buying things on credit. This concept is simple enough to understand, yet extremely difficult to implement. Why is that? Life simply has a way of getting in the way.

Just when you need it the least, your car will break down, or you may lose your job. If you have children, you know that it seems like they are always getting hurt or sick and let’s face it, doctors are expensive. These minors emergencies can turn into major ones real quick if you have to pay for them using credit cards.

Once you are current on your monthly bills, save up $1,000 as fast as you can and start a small emergency fund. This amount should be sufficient to cover these minor emergencies without being forced to go into further debt. When we started building our initial emergency fund last year, both of our dogs had issues. The smallest one, a Silky Terrier, had major gum and teeth issues. In one month alone his bills reached $400. Our second dog, a Scottish Terrier, also got pretty sick. Her bills only totaled $200, but when you combine these bills, we had over $600 in unexpected expenses in one month. If we did not have our emergency fund started, we would have had to put these expenses on a credit card at 15% interest.

Keep Your Emergency Fund Liquid

Make sure you put your emergency fund money where you can get to it quickly. This money should not be seen as an investment. It is security and should be treated as such. Personally, we opened a money market account at our local bank. This provided us a slightly higher than normal interest rate and provided us the comfort in knowing we could pull it out whenever we needed it.

I would never put this emergency money in bank CDs, stock or mutual funds. Again, this is meant for emergencies, not as an investment.

Do you have an emergency fund in place? If so, how much was your initial emergency fund?

Popularity: 21% [?]

I have to be honest with you. This economy scares me…… A lot!

If we had a fully funded emergency fund, I would not be as scared, but alas, we do not. It seems as though thousands of people are losing their jobs everyday. People you and I know well; friends, neighbors, family, perhaps even you. How long can they survive on unemployment? I know where I live, our state ran out of money. We had to request emergency funding just to be able to help those people who truly needed it.

In economies like this one, it only makes sense to consider just how safe you are. If you were to lose your job on Monday morning, could you continue to pay your bills while you searched for another job?  How long could you keep that up? Personally, we would not last very long. While I do have a great job (more of a career really), the lack of emergency fund still scares me. Almost to the point of wanting to get another job on the weekend in order to save some extra money.

Since my wife stays at home with our son, we currently survive soley on my income. If I rearranged my personal free time, I think I could squeeze out another 10 hours a week to commit to something new. Would I deliver pizzas like Dave Ramsey suggests? Probably not. But I am considering opening my own small business. I do, afterall, have a marketable skill that is always in demand.

But how much is my time worth? Would I even be able to make a profit during the next 12 months? Where would I get the money to start my own business? I would need to buy a new computer, some accounting software and organize my business as an LLC. Would my time be better served playing trains with my son or spending time with my wife? These are some difficult questions that need some quick answers.

I would love to hear what you guys think? If you had the ability to start a small business, in order to create additional income even though that meant spending a few less hours with your family, would you do it? Please drop me a comment and voice your opinion.

SUBSCRIBE to my FEED!

Popularity: 18% [?]

A few months ago, my wife and I attended Dave Ramsey’s Financial Peace University. I must admit that I was completely surprised that my wife was interested in going at all. Don’t get me wrong, when I was working 100 hours a week at E&Y, she paid all of the bills and made sure we keep our credit in decent shape. She does not, however, have the passion for personal finance and investing that I do. When she suggested that we attend, I jumped all over that idea and ran with it.

Following Dave’s baby steps, we quickly established our “baby” emergency fund of $1,000. Good luck was with us while we then started to attack our debt. Within the next three months, we had paid off $7,000 in consumer debt, leaving only my student loan and our mortgage left. The life started happened…. AGAIN!

Both of our cars had issues, my Silky Terrier needed $500 worth of medical care and the refrigerator died. All valid emergencies, but needless to say, our emergency fund really took a hit. Currently, it sits pathetically low, haunting my dreams and basically just stressing me out.

This is not the environment to be short in the cash department.

Last night, as my wife and I had one of our weekly budget meetings, we discussed the “state” of our e-fund. I realized something that had never occured to me previously. To my wife, an emergency fund equates to safety. Without it, she feels out of control and scared. I cannot imagine how she must have felt when we were making a combined $25,500 and living off our credit cards just to survive.

With that being said, we are going to work on fully funding our emergency find over the next 12 months. Obviously, the first goal is to get it back to $1,000 and then build upon it from there. Ultimately, we need to establish a fund that would cover us for at least 6 months, should something happen to my job.

I am not going to get another job. The time I spend with my family is much too important, plus with the number of hours I work at my current job, I am not sure that I could find the time if I wanted to. I will, however, continue to write for eHow and Today. Both sites are producing nicely and I expect them to grow significantly over the next 12 months. I have also started tinkering with article marketing and affiliate sales, with limited results.

Do you have a fully funded emergency fund? Does your spouse feel more secure because of it? Drop me a comment and let me hear from you!

 SUBSCRIBE to my FEED!

Popularity: 21% [?]