No emergency fund means living on edge

Dear Dave,

My husband and I are in pretty good shape financially. We make about $ 250,000 a year with about $50,000 in the bank and no debt, and we’ve set aside money for our children’s college funds. Currently, we owe $70,000 on our home. I want to use $40,000 of our savings to pay down the house then rebuild our emergency fund. My husband disagrees. What do you think?


Dear Kelly,

You’re right about one thing. You guys are in really good shape financially, partly because of planning and wise choices. The problem I see is this: What if you have an emergency but no emergency fund? You’re living on an income of a quarter million dollars a year, and that’s fantastic, too. But I don’t like the idea of you sitting there with just $10,000 in savings. In your world, $10,000 isn’t much at all.

Baby Step 3 of my plan says that you set aside three to six months of household expenses. You guys could cheat a little bit, down to the three month side of things, but I still don’t think $10,000 will cover three months of expenses in your household.

In my opinion, $10,000 is too low. But to be honest, $50,000 is probably a little much. I’d look at a number somewhere in the $20,000 to $30,000 range for an emergency fund. Then you could throw the remaining cash at the house. I mean, let’s face it. If you did that, with your income, you could roll up your sleeves and pay off the house by Christmas!


Impulsiveness is not faith

Dear Dave,

My husband and I would like for me to be able to quit my job and stay at home with our kids. We’ve got a little money saved up, but we’re not sure we could make it on just his salary. The money would be very tight. In your mind, how do we know the difference between being financially responsible and relying on God to provide?

Michelle Dear Michelle,

This is a great question! I admire the desire to be at home with your kids, and that you realize you can’t just act impulsively and call it faith. This is a concept that’s misused and misunderstood a lot.

If you can’t make it on just your husband’s sa lar y, t hen you’ve got to develop a game planthatinvolvesawritten monthly budget and some lifestyle changes. If you do this with diligence and sacrifice, chances are you’ll be able to make this happen and not bankrupt your family. This could also mean that you start a small business on the side—something you could do from home—to offset the difference.

Having faith that God will provide requires study of the Scriptures. But God also tells us that you need the maturity and wisdom to plan your direction. The Bible says, “ The diligent prosper. He who is impulsive exalts folly.” Folly is a fool in action. It’s kind of like the guy who closes his eyes, jumps in the pool, and hopes there’s water in there—and calls that faith.

I love the idea of you coming home to be with your kids, Michelle. Just make sure you develop an intelligent plan, and mix intellect with faith.


Let someone else make the decisions?

Dear Dave,

I’ve never heard you discuss at what point it’s advisable to let someone else make and manage your investments. Also, is there a point at which it’s good to go with a fee-only financial planner?

Anonymous Dear Anonymous,

I think it’s always a good idea to do it yourself. And to be honest, I never recommend fee-only planners.

Don’t just turn everything over to someone else – no matter how many letters they have after their name – and let them manage it all or make all the decisions for you. You’re the one who made the money, so you should take care of your own stuff. In lots of cases people looking for this kind of help have a greater net worth than the bozos dishing out advice and wanting to “handle” it all.

None of this stuff, investing, personal finance, or saving, is rocket science. You need to be in control of your money. Now, can you have counselors in your life? You bet! Everyone needs the benefit of people around them who have wisdom and experience.

But it’s never a good idea to just blindly trust someone. If you do, you might end up like an old, washed up boxer – no money and no teeth!


Pension? Invest away!

Dear Dave,

My wife and I are both active duty Marines. She’s planning to get out in a few months, but I’m staying in for the long haul. You recommend saving 15 percent for retirement, but how does that apply in my case when I’ll be getting a good pension after 20 years?

James Dear James,

I’d like to see you do both. Just imagine the money you guys would have for retirement with your military pension and a big pile of cash from having saved 15 percent of your income over the years.

Hav ing options is a great thing. Think about all the things you could do down the road if you save for retirement and have your pension in place. You could pay cash for a home, or even open a business when you retire from the military. And these are things you probably wouldn’t be able to do working with just your service pension.

You’ve got a great future if you’ll just keep plugging along and saving, James. Let the military do its thing, and you guys keep pumping 15 percent of your income into Roth IRAs and other pre-tax retirement plans. It’s going to be pretty cool!


Dave Ramsey is a trusted voice on money and business. He’s a best-selling author and his radio show is on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at

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