Where Is My Starter Emergency Fund Kept?

If you followed along for a while, I like high-yield safe returns on my money. My money works for me after I’m done working for it. So, where is my starter emergency fund kept, and would Dave Ramsey be happy?

Protecting your emergency fund, hold your savings close.

Why Care What Dave Ramsey Cares About?

After messing around with developing my own personal financial security system, I over-complicated it and found Financial Peace University. Since then, I have followed the Dave Ramsey Baby Steps methods to financial peace.

His Financial Peace system is stupidly easy. Getting that motivation, or as Dave Ramsey’s “Giselle Intensity,” is problematic. Will you get rich with the system? Well, you will get peace? Much of Dave Ramsey’s approach is what you do with money, not necessarily how to get it, which is why I am a two-part student.

Managing money, a student of Dave Ramsey.

Getting money, a student of Robert G. Allen.

We’ll talk more about this in a later post.

What Is Step 1 Emergency Fund Vs. Step 3 Emergency Fund?

Not an expert at Financial Peach University, but I once was a paid student and now follow along with Dave Ramsey’s YouTube Channel(https://www.youtube.com/@TheRamseyShow).

Planning for emergencies is how we avoid financial ruin. And financial ruin comes from having more bills(or spending more) than what money we have.

The ultimate goal is to have a fund of money so large you never have to work again. This is the goal of a retirement account, Baby Step #4, but that is a planned and unplanned event; we have the Emergency Fund.

The ultimate emergency for the emergency fund is losing your income due to losing your job. So the goal is to have enough money for 3-6 months of bills saved up. Now getting that much money in a short time is tough for many of us.

So preparing for the emergency of losing your job is built into three related steps:

Address most likely immediate emergencies buy to build a quick low, balance emergency fund. A starter emergency fund.
Eliminate unnecessary bills. Debt is an unnecessary bill. They got to eat and have shelter, but no one had to have a credit card bill.
Finish off building and fully funding your large emergency fund.

Step 1 is the start an emergency fund and stop at $1000.

Step 3 is to complete funding your emergency fund and stop at 3-6 months of expenses.

So what is the difference between the emergency funds? It’s the same one, just that depending on what step you are in your Baby Steps to Financial Peace, your income has different goals in where the money is directed.

I focus on a 6-Month Emergency Fund. But want that money to generate additional passive income and remain somewhat liquid. Just an idea: What Is A T-Bill Ladder Strategy? with a plan: How To Build T-Bill Ladder Emergency Fund (My Plan).

So Step 1 Emergency Fund is the same as the Step 2 Emergency Fund.

What Is A Good Starter Emergency Fund?

So to avoid knee-jerk reactions to emergency bills like blown car tires (FYI, not planning for car repairs like worn tires is not an emergency. It’s a lack of forward thinking and planning).

Now the goal of a good starter emergency fund is the most immediate amount of money(Fast Cash) I would need for the most likely emergency that can happen.

When I was younger, a car breaking down was an emergency, so I thought having enough to buy a new car was the goal. When in an emergency, I could either borrow, oh now Dave is crying, money to get another cheap car to get to work, or carpool till I get another car; Dave stopped crying.

As I’m older, I have a commuting car and a family car. So a car breaking down isn’t an emergency but another unwanted bill. I imagine a likely emergency is a medical or plumbing issue like a water heater.

Now the amount of money I would want immediately available for an emergency has changed and increased. Hard to hit a constantly moving goal. But Dave’s advice changes that.

What Should Your Emergency Fund Be, According To Dave Ramsey?

As I pointed out, looking forward to building my starter emergency fund(Step 1), I would be wishy-washy about the amount I needed.

The Financial Peace program arbitrarily puts the starting amount at $1000(FPU Baby Step #1). This is probably from research derived from members regarding the amount needed for the most common emergency in that you need fast cash.

Would I like a starter emergency fund at $5000? Sure, but that extra $4000 could have been directed sooner to paying off my debts when I had them.

The goal with Baby Step 1 is to stop at $1000, just a pause, direct the rest of the money in Baby Step 2 to eliminate debt, and then in Baby Step 3, restart funding the rest of the long-term emergency fund.

So, having $1000 put aside will cover much of the life emergencies is the goal for Baby Step #1.

Safe Place To Keep An Emergency Fund?

Now, this is up for debate. If I need peace of mind, and financial peace, I need to have my starter emergency fund very liquid asset (https://www.investopedia.com/terms/l/liquidasset.asp).

If you go to Dave Ramsey Solutions’ page: https://www.ramseysolutions.com/saving/quick-guide-to-your-emergency-fund, you’ll read:

A simple savings account connected to your checking account is good.
A money market account with easy access, like a debit card, is good.
A bank with higher than average interest rates, where the money can be quickly directed into your banking account.

FYI, what they used to call a “bank money market account” that came with higher than regular savings accounts appears to be today’s High Yield Savings Accounts (HYSA) without delays in withdrawals. You might want to consider a HYSA.

Having quick access to your money works both ways. I could fund the starter emergency fund quickly, pushing my extra dollars and pennies into it, completing Baby Step #1 as fast as possible.

Also, I could use that fast cash when an emergency arises.

In the meantime, the money is safe, not in the mattress, and grows with some interest, like a small passive income generator.

Where Did You Use To Keep Your Starter Emergency Fund?

I always keep my initial emergency fund in the bank. I kept it in a savings account at one bank, separate from my checking account.

However, some changes to my relationship with one of my banks have made a difference in how I keep my starter emergency fund, the $1000.

Getting Pushed Down Can Mean You Come Up Financially Stronger.

One day I was ordering my groceries as I always do, with Walmart pick-up service, and I ran into an error at the checkout process.

I received an error that said the reserved time I had was unavailable. This is weird since the time I picked for the Walmart pick-up service was based on the available times they listed, and I clicked on it.

So I returned, selected another time, and tried to check out. Walmart’s website gave the same error; the selected reservation time for pick-up was unavailable.

The third time, I picked a completely different store and time. Again, an error at checkout stating the reserved time was not available.

About now, I noticed I was receiving error messages from my bank stating they detected unusual activity. I tried to respond to the text warnings, but the final text message was that my card was canceled due to the number of orders in a short period.

I contacted Walmart, but that is a different story; they quickly blamed me for all my problems when I tried to help them gather information to fix their site.

They ran defense and blamed my bank, the card, and even me for using their system.

Still, after a long text chat, they admitted their site had technical problems and couldn’t process orders. Duh, Walmart, that is what I was trying to explain!

I got what I pay for, and Walmart is cheap.

Well, later, my card was canceled again, causing my cellphone plan to get canceled, which limited the bank’s messages telling me my card was canceled.

I am not happy with Walmart, but less happy with my bank. The bank said it was fixed, so I went shopping for a new bank.

I found SoFi and changed over my direct deposit, which will hurt my old bank. Then the magic happened!

Why A SoFi Account?

Well, let’s talk magic.

When I set up checking, and savings accounts, both came with interest rates that I found interesting, but the real magic. I set up direct deposit to my savings account and got a crazy interest rate of 4%!!!! It became a High-Yield Savings Account.

My Starter Emergency Fund is now making 4% passive income!

Not that this is amazing, but when I do the math, 0.04/12, how much a monthly interest rate is, 4% divided by 12 months = 0.0033 or 0.33% monthly interest.

This means my $1000 earns over $3 a month!

My $1000 emergency fund makes passive income; I can see in whole numbers. 😀

Would You Recommend SoFi?

Still early, but I have a checking account and a savings account. After moving my $1000 emergency fund over, I’m pretty happy. The direct deposit comes in immediately and makes 4% annually. When I need money, I move over money to check.

Leaving a minimum balance in savings of $1000, my emergency fund.

Money is very liquid and is slowly generating a small income, so I’m happy.

How Do You Grow Your Emergency Fund With SoFi?

I passed Step 1 of the FPU Baby Steps a while ago and had to build my starter emergency fund from zero.

I put in money I would have used during the week for items I didn’t need to buy, for example, coffee. I brewed my coffee and brought it to work in a thermos.

Yes, the thermos was an initial expense, but in the long run, that thermos has helped me to grow a $1000 emergency fund.

I calculated how much I would spend at work for coffee; I was shocked by how much I spent working nights—then directed that money into a savings account.

Now if that original savings account were paying an interest rate of 4%, it would have been sweat. I was growing my savings, and my savings account was increasing my savings. Initially, it would be growing by pennies, but it would have been a real psychological boost to my drive to save money.

So would I recommend SoFi to grow your emergency fund? Sure, why not? Or any other high-yield savings account to put your money into would be a good choice.

Feedback

I found SoFi banking by accident, or better yet, a reaction to a bad customer experience.

Do you have such stories where you were forced to act and found a better situation with your money?

Please comment below if you have any feedback or advice about Emergency funds.

Tom, Growing His Passive Income Generators.