Highlights from the Dave Ramsey Show

QUESTION: Joshua in Tennessee and his wife are working the Baby Steps and have their budget in place. Sometimes their budget gets busted because of the home improvements and various things they are doing. He wants to take that excess money from the emergency fund, but she wants to take their restaurant and fun money to make up the difference. Who does Dave side with?

ANSWER: Overspending should not be an emergency. On this, I'm going to side with her, but the big thing is to find out why you're overspending. If you budget a set amount, you must have something to cut you off and keep you from running over on those home improvements. You have to calm down when you are in Home Depot.

You can use the emergency money and call this an emergency. If it's happening repeatedly, it's really not an emergency anymore. It starts to be a predictable event, so you need to set aside more for home repairs or maybe not run your home repair budget quite so close. You have some slush money there for contingencies if you have a problem.

Overall, month to month, if you bump into something such as having $200 budgeted for car repair and the repair turns out to be $250, I would prefer that you take it from somewhere other than the emergency fund. If you say that you're just going to cut back on restaurants this month because you have to fix the car. That's how we did it, and we didn't touch the emergency fund except for big stuff or real scary emergencies.

For little ticky-tacky stuff like flu shots, we didn't hit the emergency fund for that. We simply adjusted some of the other categories more like your wife is suggesting.

There are three or four answers here. Both of you could be right. Overall, I don't want this happening repeatedly. What that tells you is that you need to adjust the way you are doing your home repair budget to give yourself more room.

You can do it either way, depending on how big it is. We try to take the small stuff out of other categories like your wife would. If that happens repeatedly, we try to adjust how you're building the budget so that we don't get hit every single time with it.

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QUESTION: Mitch in Alaska says his daughter was rushed to the emergency room. They met their $10,000 deductible in one visit. He wants to know if he should pull the money out of his emergency fund or $16,000 in savings. Which is the best option?.

ANSWER: It doesn't really matter. You've had an emergency. You have $26,000 in savings, and you're about to write a check for $10,000. It doesn't really matter.

You need an emergency fund as soon as you're done with this. You've got the money to do both. You can say that you'll take it out of the emergency fund and then you put the other money back into the emergency fund, but it's just semantics at that point. You are just $10,000 poorer, but, thank goodness, the doctors took care of your baby. That is what is important. That's why we have emergency funds and why we have health insurance.

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Question: Jamie in Texas is working on her baby emergency fund. She's a contract nurse with no benefits. Is there ever an instance where she should have a larger baby emergency fund?

Answer: I would do $1,000. I would not buy short-term disability. I would buy long-term disability.

You're destroying a $19,000 car. Let's pretend for a second that you were worth $1 million and you were going to pay cash for the car. You wouldn't buy a $19,000 car to put that many miles on. You wouldn't do it now, especially when you've got $19,000 in debt on it. So maybe you don't move all the way down to a $1,000 beater, but you probably need to be in the $7,000 range just because whatever you're driving, you're destroying its value. I'd just borrow the difference and just save up. It may take you a little while to make that move.

It's weird when you hear $65,000, and half of your debt is car. I immediately go, "How can I help this lady the most the fastest? How can I get her heading the right direction as much as possible?"

That's what I started thinking about, and that's the direction I would move you in general. If you're really concerned about it and you want to move from $1,000 to $2,000 or something because you've got irregular work and it's not predictable and those kinds of things, that's fine. The point here is you've been surviving without an emergency fund for a long time, so there's no need to save $10,000 before you start trying to get out of debt. You've probably got some car moves you need to make, and it's probably going to take you two years to become debt-free even with that. Just get in there and weigh all of that out.

Here's the great news about your situation, Jamie: You guys are actually paying attention now. Whatever you do, you're going to be doing it on purpose with the end in mind—with how we're going to go win as a result of having done that.

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