{"id":17352,"date":"2020-11-02T21:58:00","date_gmt":"2020-11-03T01:58:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=17352"},"modified":"2020-11-11T17:58:16","modified_gmt":"2020-11-11T21:58:16","slug":"baby-step-3-total-money-makeover","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/baby-step-3-total-money-makeover\/","title":{"rendered":"Baby Step 3: Make Sure You Have Savings for 6 Months"},"content":{"rendered":"\n

What is baby step 3 of the Total Money Makeover<\/em> program? How big of an emergency fund is enough?<\/p>\n\n\n\n

Baby step 3 is to make sure you can cover your expenses for 3-6 months. This keeps you protected if something big happens, like losing your job.<\/p>\n\n\n\n

Read more about baby step 3 of the Total Money Makeover <\/em>program.<\/p>\n\n\n\n\n\n\n\n

Baby Step 3: Boost Your Emergency Fund<\/strong><\/h2>\n\n\n\n

At this point, you\u2019ve eliminated debt other than your mortgage and have $1,000 cash for emergencies. You\u2019re now in control of your income and have momentum. Baby step 3 is boosting your emergency fund to give you a cushion against big, life-disrupting problems like a job loss or medical bills.<\/p>\n\n\n\n

Remember, major financial emergencies are inevitable in life, and if you use debt to cover them, you\u2019ll be back to square one. Everyone needs an emergency fund large enough to cover three to six months of expenses<\/strong>, enabling you to manage for up to half a year without an income. In one survey, 49% said they couldn\u2019t cover even a month\u2019s expenses if they lost their income. That’s why you need to do baby step 3.<\/p>\n\n\n\n

The amount in your emergency fund should be between $5,000 and $25,000<\/strong>. <\/p>\n\n\n\n

For example, a frugal family with expenses of $3,000 a month might keep a minimum of $10,000 in an emergency fund. While $3,000 a month may not seem realistic, keep in mind that when you\u2019ve eliminated debt and have adequate insurance coverage, it\u2019s possible to live on much less than your income.<\/p>\n\n\n\n

The exact amount you should save for emergencies depends on your situation. If your situation is unstable\u2014for instance, if your job could be at risk\u2014you need a larger emergency fund. Here are some rules of thumb:<\/p>\n\n\n\n