Beyond Your Beginner $1,000 Emergency Fund: How To Build Your Full Emergency Fund

Over the last couple of posts, we’ve focused our attention on:

  • The importance of Baby Step No. 1… why you need to build your $1,000 emergency fund right away
  • Exactly how to build your $1,000 emergency fund
  • The challenges you’ll experience as you try to build your $1,000 emergency fund… and how to overcome those challenges like a pro

Today, we’re taking a look at the next step you should take, once you’ve built that $1,000 emergency fund.

Right now, we’re in the first section of Page 12 in Chapter 1 of Dave Ramsey’s Complete Guide to Money.

And here’s my lesson for the day:

Your income might suddenly dry up one day – you need to be prepared for that day.

Chapter 1, titled Super Saving: Common Sense for Your Dollars and Cents, continues on Page 12 with the next Baby Step for you to take, once you’ve achieved Baby Step No. 1 (putting $1,000 in a beginner emergency fund).

Because let’s face it:

It’s all great and excellent that you’ve started your journey to financial freedom… by building up your beginner emergency fund and stashing $1,000 inside that fund…

… and I really commend you for that…

… but we both know personal finance, just like so many things in life, is a journey, right, not a destination.

You navigate that journey, by putting one step in front of the other, and celebrate your small wins along the way.

Which is why I want to take a moment right now… to congratulate you and celebrate with you, because you’ve built your $1,000 beginner emergency fund.

I’ve also built mine, and I couldn’t be happier.

Here’s why:

Starting with that $1,000 beginner emergency fund gives you that confidence that you can actually achieve whatever you set your mind to do…

… and it doesn’t matter what that little voice in your head keeps telling you…

… that you’re in such a huge financial mess that you won’t be able to get out of.

So congrats on building your $1,000 beginner emergency fund!!

So, what’s next?

What do you do once you’ve achieved Baby Step No. 1 by building your $1,000 beginner emergency fund?

According to Dave, you pay off all debt using the debt snowball method (Baby Step No. 2).

However, in this section of the Complete Guide to Money book, Dave chose to create a separate chapter for paying off debt (Chapter 4), and continue in our central theme for this chapter of the book.

Which is… saving, saving, saving.

So let’s assume you don’t have any debt, or that you’ve gotten out of debt, what do you do?

The answer? Dave recommends that you go back to your emergency fund and fill it up.

And ow exactly do you do that?

By using Baby Step No. 3 – putting three to six months of expenses into savings as a full emergency fund.

That’s right…

… you’ve built your beginner emergency fund using Baby Step No. 1, and so now’s the time to start building your full emergency fund using Baby Step No. 3.

And so, the next question becomes: how do you build your full emergency fund?

Answer: By calculating your key expenses for three to six months, and putting that amount in the bank.

So here, we’re talking about three things:

  1. Your income
  2. Your expenses
  3. Your key expenses

To build your full emergency fund (Baby Step No. 3)…

… you’ll need to calculate your key expenses, multiple that by three or six (months), and keep that in a separate bank account, where you can easily cash it out.


  1. Your income: is how much you have after taxes have been deducted from your salary
  2. Your expenses: is how much it costs you to pay all your bills every month
  3. Your key expenses: is “how much it costs to keep your household running for a month”

Your expenses might include a lot of bills that are just nice to have, but don’t directly affect you running your home every month.

Your next task is to figure out what those ‘nice-to-have’ bills are, and remove it from your list of expenses.

Or better yet, create your list of key expenses.

Think of your key expenses this way:

If you suddenly lose your income, how much would you need to live and not go into debt?

For example, your list of key expenses might look like this:

S/NKey ExpenseAmount ($)
1Rent – you need a place to put your head every night1,200
2Food – so you don’t starve300
3Electricity & Internet200
4Car Insurance & Gas for Car200
5Phone Plan40
6Medical Expenses350
List of key expenses… your reality check

Once you create this list of key expenses, it might surprise you to realize that you really don’t need a lot to keep your household running…

… and that a lot of the extra things that you currently pay for are not necessary, and that you can do without them.

Which is why I like this idea of figuring out your key expenses…

… it makes you face the reality, so you see the things you really need and the things that you can absolutely do without.

So once you have created a table like the one above, what do you do with it?

The next step is for you to calculate your full emergency fund…

… your full emergency fund will be three to six times your total key expenses.

So for example, for the person with the key expenses in the table above,

3 x $2,290 = $6,870

6 x $2,290 = $13,740

And so their full emergency fund will be somewhere around: $6,870 – $13,740.

So, Baby Step No. 3 for this person will be keeping $7,000 – $14,000 as a full emergency fund in the bank.

Now, I know this figures might sound like a lot to put away in the bank…

… until you realize that building your full emergency fund can save you from going into needless debts, being at the mercy of loan sharks, and becoming frustrated / overwhelmed if your income suddenly dries up.

Because here’s the deal: you may not be able to control if your income will keep coming in…

but you can control how you prepare in the event that your income suddenly dries up.

Because I will tell you this:

Your income might suddenly dry up one day – you need to be prepared for that day.

That’s all for today, my friend. We’ll continue in the second section of Page 12 of the book tomorrow.

See you then.


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