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Dave Says: No Emergency Fund Means Living on the Edge

Dave Ramsey - July 10, 2012

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I want to use some of our emergency fund to pay down house debt. Good idea?

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?

Kelly

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!

—Dave

For more financial advice, visit daveramsey.com.

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