Saving Up the Emergency Fund

Michael asks what a normal time frame to shoot for is when building the emergency fund. Dave says it takes six months or less.

QUESTION: Michael on Facebook asks what a normal time frame to shoot for is when building the emergency fund. Dave says it takes six months or less.

ANSWER: Six months or less is what it takes the average person. You ought to be able to save a month’s expenses a month. When you don’t have any debt but your house, you’re really in intensity still, you’ve still got the gazelle intensity, you’re still focused, you’re still going crazy, I want you to try to get your three to six months in six months. If you’re only saving up three, it’s a lot easier, but somewhere in there.

The average family, by the way, that starts the whole Total Money Makeover process—they buy The Total Money Makeover book and go to Financial Peace University or they just listen to me here on the radio and they do it—the average family is debt-free but the house in 18–24 months. That’s average, which means some people have $4 million in student loan debt, and it’s going to take them six years. Other people have $3,000 in debt, they’ve got $10,000 in the bank, and they go home and write a check once they figure it out, and they’re debt-free instantly. The average is 18–24 months to be debt-free for Baby Step 2. Baby Step 1 is $1,000 in a starter emergency fund. That should take a month or less.

Once that’s done, then Baby Step 2 is debt-free but the house using the debt snowball, using the gazelle intensity in 18–24 months. That gets you debt-free but the house. You move on to Baby Step 3, and you start putting everything you can throw on that $1,000 account until you raise it up to three to six months of expenses. Your expenses are lower now. You don’t have any debt. That’s going to take you an average of about six months.

Then when you get to Baby Step 4, you do Baby Steps 4, 5 and 6 at the same time. Baby Step 4 is 15% of your income going into retirement. Baby Step 5 is starting your kids’ college funding if that’s applicable. Baby Step 6 is everything else is thrown at the house. You pay off the house as quickly as you can, which takes you on to Baby Step 7, which is you’re debt-free including the house. You just get really rich and give a bunch of it away. The average person doing this stuff with intensity, with focus, with organization, and leans into it and cares, is debt-free—house and everything—in about seven years.