Dave Says

Save an emergency fund before building your retirement fund

Dave Ramsey

Dear Dave,

I just started Baby Step 3 of your plan. It took me about 12 months to pay off $8,000 in debt during Baby Step 2. I am 50, and I work in the printing industry making about $38,000 a year in a city with no local or state income tax. I have not done a lot about retirement yet, and that worries me now that I am learning to manage money in a smarter way. How can I stay on track with the Baby Steps and still do something about retirement?


Dear Blake,

I generally look at a time frame of six months to a year for saving a fully funded emergency fund. So, if it took you about a year to pay off $10,000 in debt, you’re probably looking at about the same length of time – or less, since the debt is gone – to save up an emergency fund. Keep in mind that an emergency fund is three to six months of expenses, not income.

But here’s the thing. If you start building retirement right now and have an emergency, do you know what you’ll use? Yep, you’ll use your retirement. That’s why an emergency fund comes before retirement in the Baby Steps.

The median household income in America is around $68,000, and that’s often two incomes. You’re probably working pretty hard for that $38,000, so I would challenge you to think about and work toward something you could be doing in the near future to make that much money or more.

I want you to open your mind and imagination, and start thinking fresh again. Don’t do something silly like quit your job today, but if you’re going to be making $38,000 five or 10 years from now it’s time to aim at something else.

I’m trying to speak to your retirement fears, as well as warn you against addressing retirement without having an emergency fund in place. Save up a solid emergency fund over the next year, while at the same time doing some serious thinking and goal setting.

Maybe you’d like to do something completely different, or even own a printing company by that time. Who knows? The cool thing is you can make it happen, and the choice is all yours!


Dave Ramsey

Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business, and many more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.

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