{"id":17346,"date":"2020-11-05T21:47:00","date_gmt":"2020-11-06T01:47:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=17346"},"modified":"2025-09-15T10:12:24","modified_gmt":"2025-09-15T14:12:24","slug":"baby-step-1-total-money-makeover","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/baby-step-1-total-money-makeover\/","title":{"rendered":"Baby Step 1 of Money Makeover: Create an Emergency Fund"},"content":{"rendered":"\n<p>What is baby step 1 of the <em>Total Money Makeover<\/em> program? What is an emergency fund?<\/p>\n\n\n\n<p>Baby step 1 is to create a $1000 emergency fund. This emergency savings is an essential backup as you work through the <em>Total Money Makeover <\/em>program.<\/p>\n\n\n\n<p>Read more about baby step 1 of the <em>Total Money Makeover <\/em>program.<\/p>\n\n\n\n<!--more-->\n\n\n\n<p><em>Editor\u2019s note: This article is part of\u00a0<a href=\"https:\/\/www.shortform.com\/blog\/hub\/personal-life\/health\/nutrition\/dieting-guide\/\" target=\"_blank\" rel=\"noreferrer noopener\">Shortform\u2019s guide to saving money<\/a>. If you like what you read here, there\u2019s plenty more to check out in the guide!<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-total-money-makeover-baby-step-1-create-an-emergency-fund\"><strong><em>Total Money Makeover<\/em> Baby Step 1: Create an Emergency Fund<\/strong><\/h2>\n\n\n\n<p>Now that you\u2019ve dispensed with the common debt and <a href=\"https:\/\/www.shortform.com\/blog\/myths-about-money\/\">money myths<\/a>, you\u2019re almost ready to begin <a href=\"https:\/\/www.shortform.com\/blog\/the-total-money-makeover\/\">the Total Money Makeover<\/a> process, which consists of a series of seven simple steps, referred to in the book as baby steps. No matter how big your financial challenges, you can overcome them by taking one small <a href=\"https:\/\/www.shortform.com\/blog\/step-at-a-time\/\">step at a time<\/a>.&nbsp;<\/p>\n\n\n\n<p>However, it\u2019s important to follow each Total Money Makeover step in the prescribed order, because the steps build on each other. If you jump ahead to later steps, you\u2019ll fail at them because you haven\u2019t laid the foundation. Just concentrate on one step at a time in sequence.<\/p>\n\n\n\n<p>Before starting, however, there are two preliminary steps:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Write out a monthly budget.<\/li>\n\n\n\n<li>Get current on all your payments.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-preliminary-step-1-make-a-budget\"><strong>Preliminary Step #1: Make a Budget<\/strong><\/h3>\n\n\n\n<p>Create a written budget each month determining where your money will go; if you don\u2019t, it will just disappear without your thinking about it.<\/p>\n\n\n\n<p>Successful people have written goals; simply put, a monthly budget is your money goal. It wouldn\u2019t make sense to build a house without blueprints, nor does it make sense to spend your life\u2019s earnings of $2 million without a plan.<\/p>\n\n\n\n<p>Motivational speaker and author Brian Tracy notes that having written goals is a more important contributor to extraordinary success than education, connections, talent, or <a href=\"https:\/\/www.shortform.com\/blog\/inherited-wealth\/\">inherited wealth<\/a>. He quotes a study of Harvard graduates, which found that two years after graduating, the 3% with written goals had greater <a href=\"https:\/\/www.shortform.com\/blog\/achieving-financial-success\/\">financial success<\/a> than all others combined.<\/p>\n\n\n\n<p>(Shortform note: <a href=\"https:\/\/www.shortform.com\/app\/book\/eat-that-frog\">read our summary of Brian Tracy\u2019s book, <em>Eat That Frog<\/em>, here<\/a>.)<\/p>\n\n\n\n<p>Ramsey\u2019s <a href=\"https:\/\/cdn.ramseysolutions.net\/pdf\/fpu\/fpuonline\/monthly_cash_flow_plan.pdf?_ga=2.199727662.1090258596.1591115641-545402292.1583246131\">monthly budget forms can be downloaded here<\/a>.<\/p>\n\n\n\n<p>Here are the basic steps to get started:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Each month, draw up a new budget for the next month<\/strong>. If you\u2019re married, sit down with your spouse to do this. Conflict over money is the No. 1 reason for divorce in the U.S. Often this is due to different personalities and money <a href=\"https:\/\/www.shortform.com\/blog\/kinds-of-managers\/\">management styles<\/a>. The way to <a href=\"https:\/\/www.shortform.com\/blog\/how-to-avoid-conflict-in-relationships\/\">prevent conflict<\/a> is to let differences complement each other and work together each month to establish shared money goals.<\/li>\n\n\n\n<li><strong>List the month\u2019s bills, savings, and debts, then list and allocate every dollar of your income<\/strong> (think of this as spending the money on paper before the month starts). This process is referred to as <a href=\"https:\/\/www.shortform.com\/blog\/dave-ramsey-zero-based-budget\/\">zero-based budgeting<\/a>: monthly income minus expenses equals zero. If you have variable income because of commissions or self-employment, <a href=\"https:\/\/cdn.ramseysolutions.net\/pdf\/fpu\/fpuonline\/irregular_income_planning.pdf?_ga=2.185381545.1090258596.1591115641-545402292.1583246131\">use this budget form<\/a>.<\/li>\n\n\n\n<li><strong>Once both partners agree on a budget, pledge not to do anything with your money that isn\u2019t prescribed by the written plan<\/strong>. You can\u2019t get control of your spending without working together. If something unexpected comes up\u2014for instance, your car needs repairs\u2014hold an emergency meeting and together reallocate and balance the categories so that the month\u2019s income minus expenses still equals zero.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-preliminary-step-2-catch-up-on-loan-payments-nbsp\"><strong>Preliminary Step #2: Catch Up on Loan Payments&nbsp;<\/strong><\/h3>\n\n\n\n<p>Besides creating a monthly budget, the next thing you must do before taking your first Total Money Makeover step is to get current on all loan and credit card payments.<\/p>\n\n\n\n<p>If you\u2019re behind on any payment, you need to catch up. If you\u2019re <em>really<\/em> behind, pay for your necessities first\u2014food, shelter, and transportation\u2014then catch up on debt payments. You can\u2019t start a Total Money Makeover, which hinges on eliminating debt, until you\u2019re keeping up with your payments.<\/p>\n\n\n\n<p>Now, get fired up about putting your financial problems behind you and focus intensely on the steps that follow.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-baby-step-1-create-a-1000-e-mergency-fund\">Baby <strong>Step 1: Create a $1000 E<\/strong>mergency Fund<\/h2>\n\n\n\n<p><strong>Everyone needs a rainy day fund because it\u2019s guaranteed to rain<\/strong>\u2014there\u2019s always a financial emergency\u2014at some point.<\/p>\n\n\n\n<p>In a typical 10-year period, according to <em>Money<\/em> magazine, 78% of people will have a major financial challenge, such as a layoff or firing, an unexpected pregnancy, or illness. Things happen and you need to be ready with an emergency fund, which is why baby step 1 is about starting the emergency savings you need.<\/p>\n\n\n\n<p>Saving $1,000\u2014fast\u2014is the baby step 1 in the Total Money Makeover because, without a financial cushion for emergencies, an unexpected expense is likely to derail the program. If you respond to a financial emergency by turning to debt after starting a money makeover, it will be like breaking a diet and you\u2019ll feel like a failure.<\/p>\n\n\n\n<p>Besides keeping your reform efforts on track, having an emergency fund is a hedge against Murphy\u2019s law\u2014trouble seems to dog anyone without a safety net. Granted, $1,000 won\u2019t get you through a life-altering crisis, but it\u2019s enough to keep smaller crises from triggering debt. You\u2019ll build on this amount in step #3, when your finances are in better shape.<\/p>\n\n\n\n<p>Many people think you should have a credit card for emergencies, but it\u2019s better to plan and save for emergencies than to borrow when they happen, which puts you at even greater risk. The Total Money Makeover is about breaking the cycle of <a href=\"https:\/\/www.shortform.com\/blog\/maturity-continuum-7-habits\/\">dependence<\/a> and eliminating credit.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-what-emergency-savings-is-for\"><strong>What Emergency Savings Is For<\/strong><\/h4>\n\n\n\n<p>An emergency fund is for emergencies only\u2014for instance, a medical problem or an expensive repair for a car that you need for work. It\u2019s not for things you suddenly want, like a couch on sale or a weekend trip. <\/p>\n\n\n\n<p><strong>Christmas isn\u2019t a financial emergency, although many people treat it that way<\/strong>. It\u2019s a yearly event that you can save and budget for it. The same is true of your kids outgrowing their clothes\u2014it\u2019s expected and you need to plan for it. These kinds of things feel like emergencies only when you haven\u2019t planned for them.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"h-how-to-get-to-a-1-000-emergency-fund\"><strong>How to Get to a $1,000<\/strong> Emergency Fund<\/h4>\n\n\n\n<p>Do whatever you can to round up $1,000: cut your spending, work extra hours, or sell something (have a yard sale, for instance). Most people can find the money in less than a month, but if you can\u2019t, sell more stuff or take on an extra job.<\/p>\n\n\n\n<p>When you get $1,000, <strong>stash it where it\u2019s accessible in an emergency but not so easy to grab that you\u2019ll be tempted to spend it for non-emergencies<\/strong>. If you put it in a savings account, don\u2019t attach that account to your checking account as overdraft protection\u2014or you\u2019ll spend it on impulse buys. (One woman framed 10 hundred-dollar bills and hung the \u201cpicture\u201d out of sight in a coat closet.)<\/p>\n\n\n\n<p>On the other hand, <strong>don\u2019t put it where you\u2019ll be reluctant to tap into it during an emergency, for instance in a CD with a penalty for early withdrawal<\/strong>. This might tempt you to borrow for the emergency instead. When your emergency fund is fully funded (baby step #3), a money market fund is the best place for it\u2014Chapter 8 explains this in more detail.<\/p>\n\n\n\n<p>If you need to use your emergency fund during the Total Money Makeover, pause the program, regardless of the step you\u2019re on, go back to step 1, and replenish the emergency fund.<\/p>\n\n\n\n<p>Along with monthly budgeting, creating an emergency fund may be your first experience of taking control of your money. Having a hedge against disaster for possibly the first time should empower you and give you a sense of hope. That&#8217;s the purpose of baby step 1 and having a $1000 emergency fund.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is baby step 1 of the Total Money Makeover program? What is an emergency fund? Baby step 1 is to create a $1000 emergency fund. This emergency savings is an essential backup as you work through the Total Money Makeover program. Read more about baby step 1 of the Total Money Makeover program.<\/p>\n","protected":false},"author":6,"featured_media":17611,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,31],"tags":[147],"class_list":["post-17346","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lifestyle","category-money","tag-the-total-money-makeover","","tg-column-two"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.3 (Yoast SEO v24.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Baby Step 1 of Money Makeover: Create an Emergency Fund - Shortform Books<\/title>\n<meta name=\"description\" content=\"How do you start the Total Money Makeover? Baby step 1 empowers you to protect yourself with a $1000 emergency fund. Here&#039;s why you need it.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.shortform.com\/blog\/baby-step-1-total-money-makeover\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Baby Step 1 of Money Makeover: Create an Emergency Fund\" \/>\n<meta property=\"og:description\" content=\"How do you start the Total Money Makeover? Baby step 1 empowers you to protect yourself with a $1000 emergency fund. 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