Emergency Fund

On the road to financial responsibility, the Emergency Fund, has a vital part in that journey to ensure that we don't rely on credit cards to help us through life's challenges. We'll take a look at the initial EF that you should have while paying off your debt.

The question is how much initial emergency fund do we need? Dave Ramsey states in his Baby Steps, that a $1000 EF should be in place before you start to tackle debt. Recently, on Frugal Dad, this topic was covered as the "Recession Proof Emergency Fund". It is another great idea of what works for you.

I think that your EF should be based on several personal factors. First, how long it will take you to pay off your debts? My debt snowball spending plan will take about another year to complete. So, if I have to stop paying on my debt snowball, at this time this will leave a significant amount of monthly payment to the emergency in addition to the EF in place.

I also believe you have to consider your job security. Of course, some sectors of our society are being hit hard from the current economic situation. However, with the 7-8% unemployment rate, that also means that 90% plus of Americans are working! I currently have great job security because I work in Public Safety and have for the last 22 years.

Your current health should also be evaluated in regards to how much EF you may need. Of course, all of life's emergencies cannot be predicted, but if you are in good health, and have good medical insurance, this also may affect your initial EF.

At this time, I am comfortable to have a $1000 EF in place until my debts are paid off. This may be different for you considering your situation. Of course, after the debt is gone in February of 2010, I will put into place a 3 month EF according the Baby Step #3 of Dave Ramsey's plan.