Hey y’all… how’s it going with our Dave Ramsey ‘Total Money Makeover’ steps to financial freedom? Well, once you’ve got your Emergency Fund established, and then you tackle all of your debt with the Debt Snowball, then it’s time for the next step.
Step 3: Build a 3 to 6 Month Savings
So, if you’re working on this step now, that means you have gotten yourself out of debt (perhaps with the exception of your home)! How does it feel??! Well, don’t get lax with your spending habits just yet. Stay focused a little longer. This step should be fairly easy to accomplish now that you are out of debt because all of the money that went to your debts can now go straight to your savings.
You will want to save enough money to cover 3 to 6 months of your daily living expenses. This savings is a safety net for when tough times come. It helps protect you in case of unemployment, large medical expenses, or other out of the ordinary troubles. As Dave explains it, it’s “a buffer between you and life”.
Just like the $1000 Emergency Fund, you will want to keep this money in a fairly liquid form. This money is not for investing. It is for emergencies. So keep it in an easily accessible form (i.e. a savings account). Having this money set aside for a rainy day will bring you peace and comfort you cannot otherwise imagine.
I cannot tell you how much it helped to relieve stress when my heart condition was discovered and knowing I was going to have major surgery that I didn’t have to worry whether we would be able to pay our medical bills (this was also because we had adequate health insurance). Knowing we had that safety net in place allowed me to focus on other more important things and not have to stress about the finances. What a blessing. This ‘buffer’ has also saved us through different periods of unemployment and continues to serve as an anxiety buster any time one of life’s Murphy’s shows up at our door. It is truly a blessing that I would not want to do without.