3. Create a full-fledged Emergency Fund containing 3 to 6 months’ worth of expenses.
While I’m a strong supporter of most of what Ramsey has to say, I personally haven’t followed his “Baby Steps” plan (not strictly, anyway) in my own life. At the moment, though, I’m devoting my energy to our equivalent of this “Emergency Fund” step.
Liquid Savings Goals
Here’s what we’re looking to accumulate:
1) $12,000 in a dedicated, stand-alone Emergency Fund at ING Direct or a similar high-yield savings account.
2) $500 cushion in our Electric Orange checking account (from which we pay all bills).
3) $2,500 cushion in my wife’s checking/savings account.
Once achieved, this will give our household balance sheet a “liquid savings” total of $15,000. It would cover roughly four to five months’ worth of expenses for our household.
We achieved our liquid savings goal of $15k in March, 2010.
…Plus a Freedom Account
All of the above is in addition to our Freedom Account, in which we save for irregular (but expected!) expenses. Life-insurance premiums, Christmas giving, auto-insurance premiums, and various other non-monthly expenses accrue in this account. Goal amounts, as you can imagine, vary from year to year, so I won’t delineate them here.
(Besides, this part of our financial life is pretty much on automatic pilot!)