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Jan 23, 2020    |       23 comments

Adapting the Baby Steps

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There’s been a lot of talk on the blog lately about emergency funds and baby steps. So since we’re on that topic, I have a question: do most of you believe there are exceptions to Dave Ramsey’s Baby Steps?

Listening to his show, I feel like he’d say never. But I agree with commenters here that say people like me with huge, long-term debt should be adapting the Baby Steps, especially when it comes to emergency funds and retirement savings.

In case you’re not a Ramsey follower, he teaches people to follow seven Baby Steps:
1. Save $1,000 for your starter emergency fund.
2. Pay off all debt (except the house) using the debt snowball.
3. Save 3-6 months of expenses in a fully funded emergency fund.
4. Invest 15% of your household income in retirement.
5. Save for your children’s college fund.
6. Pay off your home early.
7. Build wealth and give

So here are the two adaptations I think apply:

1. Keep More Than $1,000 in Our “Starter” Emergency Fund

Currently we’re in Baby Step 2 paying off $291,000 of student loans. We have $8,000 in our emergency fund that we don’t touch. Dave would tell us to put $7,000 to our debt, and keep only $1,000 in our starter emergency fund until all our debt is gone.

But our debt is so large we’ll be dealing with it for years and years. It scares me to only have $1,000 cash available to us for that long! Paying off $7,000 of our debt would be good, but I don’t feel it’d be best. I’d rather have extra cash available to us in savings. $8,000 is not a full Step 3 that would cover 3-6 months of expenses, but it’d cover us for a month or two if something came up.

2. Invest Even While in Baby Step 2

We don’t want to put off investing for retirement for too long. We’re in our late 30s, after all. But how long is too long? Fortunately we started contributing to our retirement seven years ago, and we only stopped last summer when we got more aggressive with our debt. That means we have $100,000 in an IRA that’s slowly growing even while we take a break.

However, my husband is itching to contribute to our retirement again. I vote we make a good dent in our loans first—maybe for six to twelve more months—and then contribute 10% of our income instead of 15% so we can still work on the loans. I just feel like we can’t wait to save for retirement until our massive debt is paid off, but I still want to make those stupid loans disappear.


Would you justify adapting the Baby Steps in our situation? How would you tweak them?

Jan 22, 2020    |       15 comments

Showing Some Financial Grace…

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I wrote last week about my trailer dilemma and it appears as though more facts were needed.

1) We have 6 months in our emergency fund.
2) The trailer took 2 months of that, kicking us down to 4 months of emergency fund.
3) Once the old trailer is sold, those funds will be put immediately back into the emergency fund and kick it back to 6 months.
4) I never called this an emergency. I was trying to figure out how folks buy replacement vehicles without making a temporary dip into emergency funds.

Perhaps I didn’t lay it out correctly? I outlined the trailer purchase but the issue of car replacement will be the same. My husband drives a truck worth $10K. We will be upgrading to a $20K truck in a couple years. We will save $10K (plus extra for taxes/etc) and an extra $2K in case we overvalued his truck for a total savings of $12K. We will purchase a $20K truck leaving us $8K short. We were planning on short term borrowing from the emergency fund but we were blasted for that opinion.

Is it the general consensus that:
1) We save the extra $8K rather than consider the value of the truck?
2) Or purchase from a dealer (which would be more expensive than private sale) and trade our truck in and lose the money we would have made selling it ourselves?
3) Or take out a short-term loan from a bank and pay interest in an effort to keep cash in our account?
4) Or always wait until our vehicles are valued next to nothing prior to upgrading?
5) Or (I thought this was the most reasonable) attempt to work with one car and if needed, rent short term.

All in the name of risk mitigation?

Sadly, there isn’t a perfect answer. Hence the debate. I chose the one that made the most sense to me and kept the most money in my pocket long-term.

I was also surprised at how many people brought up the post about the puppy and expressed concern about my ability to identify a true emergency and my irresponsibility with finances. I’ve been debt free for 3 years. I have had a 6-month emergency fund for 2 years that I’ve never touched (I was able to pull the $100 in vet bills – a true emergency – from other areas of my budget because I’m extremely reluctant to touch it). I think it’s OK to say I wondered if pet replacement is an emergency during a period of deep sadness. I’m human. At what point am I not considered a total financial moron? Ten years debt free? 15?

I am revising my statement in that post from “I am making a stupid call on this…” to “I am making a calculated risk”.

A hearty thanks to those who didn’t beat me up for my decision. Thank you for extending grace. Thank you for understanding that not everything is black and white.

To all the others, I’m sorry if I seem harsh. I have the flu. I’m cranky. I’m working on thicker skin. I appreciate the exercise of looking at all the options…but let’s not throw the dog (something I never moved forward with) in my face. I’m still struggling with that loss.

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