Is Baby Step 1 Too Small?

Over the next seven weeks we are going to be delving into Dave Ramsey’s baby steps and how we tweaked them to work for us.  I realize this may ruffle a few feathers as there are many strict adherents to his financial peace protocol, and with good reason. Mr. Ramsey has designed a plan that works for many people, and it was a great starting point for us as we were completely clueless when it came to financial matters.

That said, there are many of us who do not fit into the “average American” bell curve; in fact, our circumstances place us on the fringe of the curve.  For our one-income family of six, with multiple chronic illnesses, $1,000 for a starter emergency fund is a complete joke.  It is certainly better than nothing, but $1,000 barely covers anything, even if you do have health insurance.

Case in point: I had a trip to the emergency room early this year that cost over $5,000.  Mr. Ramsey instructs people to call and negotiate the bill with medical establishments.  I have attempted this on numerous occasions and it has never worked.  I have been told that the bill would have to go to collections first, then they would “work with us.”  But having my credit tank over an unpaid medical bill is not something we are willing to do.  We know Dave calls them “debt love scores”, and we understand why, but having a good credit score can be very important, even when you aren’t shopping for more credit (more on that in an upcoming post).  While every one has offered monthly payment plans with 0% interest, which is far better than putting the bill on a credit card, none of the medical service providers with whom we have tried to negotiate has ever offered to simply reduce the bill.

Another area where we believe $1,000 falls short is with auto repairs.  When a vehicle is required for work, school, and appointments, it is not something you can let slide.  We drive older vehicles with no payments, and we have had few repairs that have been under $1,000 dollars.  A good set of tires can easily eat more than half of such a small fund.  According to Angie’s List, the average price of 4 new tires ranges from $525 – $725, which would leave little for other emergencies.

So, how much do we feel is enough for the initial emergency fund?  That is a great question, and it’s one we can’t answer for you, because it will vary based on individual circumstances.  If medical issues are part of your life, as they are for us, you should strongly consider saving enough to pay your deductible without adding to your debt load or blasting your credit rating by letting a bill go to collections.

Something else to consider; Dave Ramsey started in 1992.  Due to inflation, a thousand dollars from 1992 is worth about $1,825 in today’s dollars.  In our opinion, that’s closer to the amount most folks should target for their initial emergency fund.  Again, those with extenuating circumstances may consider more.

We do agree that most people can come up with $1,000 dollars rather quickly by selling stuff, saving money by changing habits (no more lattes, use coupons, stop eating out, etc.).  We certainly understand the desire to get the debt payoff ball rolling quickly to create momentum, which is critical when you are facing paying off a mountain of debt.  Even so, for those of us who have larger bills on a regular basis, having more in your emergency fund will help you keep heart and stay the course when those big shocks hit.

We’d like to hear from you.  What do you think is a good number to have saved for baby step #1?  What factors played into your number?

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