Extra Savings Takes Away Volatility

Sarah is making $26,000 a year. Sarah has $1,000 in her emergency fund and is working extra jobs to earn extra money. Should she beef up her emergency fund in case she goes through another job loss?

QUESTION: Sarah in New Orleans is 26 years old making $26,000 a year. She has $31,000 in student loan debt she’s trying to pay off. Sarah has $1,000 in her emergency fund and is working extra jobs to earn extra money. Should she beef up her emergency fund in case she goes through another job loss? Dave thinks there might be reason to in Sarah’s situation.

ANSWER: I think $2,500 is probably good, and I probably would stop there. The only reason I ever go above the $1,000 is if there are extenuating circumstances. It sounds to me like there is in that you’ve got two things that are bearing down on you—the potential for this hoopty to blow or have a problem and an insecure job field. It’s not your fault. The newspaper world is a pretty volatile world. I agree with you on that.

Yeah, I think I’d have a little extra back, and I guess the third element is you’re on your own.

I think I’m going to push pause right there and just keep throwing money above that now at the debt because you do need to clear this debt, but you’ve got so many things that have you on the edge—a car, a job, and no family safety net, so to speak—so yeah, I’m going to have a little heavier than $1,000. I agree with you. I think you’re thinking clearly. I think I’d stop where you are. Four thousand is more than you’ve ever had in your life. It gives you a lot of room right there—a lot of wiggle room if something happens to either the car or the job. You’re no longer skirting the edge of homelessness when you’ve got $4,000 in the bank. But I don’t think you need $10,000, so I think I’m going to stop there and I’m going to throw everything else at the debt.

The other thing that’s going to give you the stability is the debt to be completely gone. Once that’s off your shoulders, you’ll be able to fly.

You need to go through Financial Peace University, and I’m going to pay for it. You are exactly why I do what I do. You’re working your butt off. You’re doing all the right things. You’re the one that you want a shot at things, and I’m going to help you. You hold on, and Kelly’s going to pick up, and I’m going to pay for you to go through the class.