Dave Ramsey Shares How to Rebuild an Emergency Fund

[00:00] Well, thanks for coming back on. Obviously, wonderful. Glad to be here. One of my favorite guests, so thanks for being here. It's mandatory for that I'm your favorite. Of course. So you've been obviously talking people for decades

[00:13] about getting an emergency fund and the importance of it. So everything that's going on in our country with the pandemic, everything happening, a lot of our tribe, who has possibly lost jobs or being furloughed, has had to dip into their emergency fund.

[00:26] So have you seen that really be the case? Yeah, a lot of them have, but more than anything, they just had peace with it being there. And knowing, and then they were able to work their budget and didn't actually have to dip into it.

[00:39] Of course, it's a case-by-case basis if somebody lost their job. Both people lost their job and they had a bunch of other things going on, but usually they've been able to manage their budget and not hit it. But in the case that they did, that's what it's for.

[00:51] That's right. So I think a lot of people when they dip into it, I've heard, they feel like they're like, they lose progress, like they're going backwards in the baby steps, but just really affirming to people that that's why it's there. So like you're not going backwards in a sense

[01:04] because you're going to fill it back up, you're going to get that fully funded emergency fund back. But I think a lot of people feel like they lose steam or that they're doing something almost wrong by dipping into it. Well, I mean, you are going backwards, but it's not like a baby step sin.

[01:17] I mean, you have a sin to the baby steps or something. It's just you use your emergency fund for an emergency. That's what it's for, but that does mean you took a step back. And you're going to fill it back up, and then you're going to move back on.

[01:29] That's okay, though. That's what it's for. There is a rhythm to life. Hopefully we never have to touch our emergency fund, but the reason we have an emergency fund is we know emergencies happen.

[01:41] And so it's probable that some time in your life, you're going to have to tap that thing. And that's okay. So talk about outside pandemic stuff. Again, going back 20 years of talking to people, like how normal is it for people to say,

[01:54] oh yeah, they call you on the show or you talk to them and they say, yeah, we had to actually use this money. Because again, I think a lot of people watching or that have it, there is this kind of guilt.

[02:06] It's there, yeah, but I don't even want to touch it. This feeling, but that it's normal that if you're in a situation that you have to have that money, you dip into it and that's okay. That's a good thing. Well, I mean, if you think about it, what is the nicknames that we give the emergency fund?

[02:20] The classic one is grandma called it your rainy day fund. Why? Because sometimes it rains, you know? And rain is to be expected.

[02:32] So you carry an umbrella, you know? And so that's a rainy day fund. One lady, and we've classically talked about this in Financial Beasts University for years. One lady called it her GOK fund. Her God only knows fund. God only knows what's going to happen, you know?

[02:45] And because he does, he's the only one that knows what's going to happen. Something's going to happen though. Life is going to happen and stuff happens. That's all done on bumper sticker, you know? And so, you know, you just got to be ready and you got to go that's part of it.

[02:58] And it's like saying, my transmission broke, you know? Of course it did. It's a transmission. It's eventually going to break. And you know, that's just stuff is going to happen. You're going to have things come at you that you are unexpected.

[03:11] And that's the definition of an emergency. So for people, it's funny. We classify emergencies like with car repairs or a health issue. But a pandemic is one that's never been used

[03:24] as an example of an emergency. Well, no. I mean, if we had used that, we would have been accused of being crazy. Yeah. Something was going to be a pandemic. And you better be ready. I mean, can you imagine the hate mail, I would have gotten about it, said that. So what are you saying from people because of the pandemic

[03:37] and everything that's happening? What is kind of the top emotion or so of people, even if they had emergency fund or not, but how this is really affected their finances? I think the folks that didn't, the phone is ringing.

[03:50] When they pick it up, they realize it's their wake up call. If you weren't ready and this thing came at you, this is your reminder to get ready. Because it's not going to be another pandemic, says Dave.

[04:04] But I mean, you know, you know, not only not, right? But it's going to be a transmission. It's going to be a dirty on the West Coast passes away and you have to chip in on a funeral. There's going to be stuff happening in your life.

[04:17] And to walk around with no money. And deeply in debt and no plan, how's it working for you? You know, it's not. And so, you know, when I went broke, it was because I was stupid and I didn't have any money.

[04:31] And I didn't keep any cash. I didn't keep any liquidity. And I built a house of cards with debt. And so that when I went broke, that was my wake up call and I had a never again moment. And some folks are having a never again moment.

[04:43] The ones that are sitting there with the emergency fund, you know, they feel like the three little pigs that, you know, one built a straw house and one built a house out of sticks and one built a house out of bricks. And when the wolf came and blew on the brick house,

[04:56] nothing happened. And they feel like they're the guy that they're the big with the brick house right now. They feel like, hey, I'm sad, you know, blow away big bed wolf. I've got my cushion here. I don't have any debt.

[05:08] It gives me lots of margin. You see, if you don't have any payments going out and you've got to pile of money, even if you do lose your job, you can go a long time, a long time.

[05:20] But you know, the added payments adds to the drain, the burn rate, out of the checking account. It does. And the level of fear that's there when you don't have it. Oh, yeah. It's a total crap problem. Yes. Oh crap. It's what, you know, you just, what has happened here?

[05:34] So for people that did dip into their emergency fund during the pandemic for job loss or whatever the case may be, what's your advice to people to fund that back? What are the things that they need to do? Not only emotionally to get gazelle tits again,

[05:47] but also tactically, what can they do? Well, obviously you need to pay attention to it. I mean, it's, you've got to be ready for the next thing and there'll be a next thing. It may not be a culture wide thing, it may be an individual thing to your family,

[05:59] but you've got to be ready for the next thing. So we have to stop what we're doing into that. And so I would just look at your income and your budget and say, how fast can we put this back? If we don't stop our 401k and baby step four,

[06:11] and if it's like don't take a year, you may want to stop your 401k again and go back to baby step three and do it. But if you can put it back and not mess with your 401k and three or four months, then put it back. And just, you know, keep, you know, do it that way.

[06:23] I don't care either way, but address the issue. Because, you know, the very fact that you used it, you know, it's just like the people that didn't have an emergency fund, this is confirmation that this is a good idea.

[06:37] That's right. Okay, so when you look at people's budgets, what are the top few categories? Like, yeah, you can cut these out to just fund that and put some extra cash away. Well, I think you just go back to, you know, beans and rice. You know, how bad do you want to not stop your 401k?

[06:52] You know, you want to cut some lifestyle out or you want to temporarily stop your 401k, but you may have to do both to get the emergency depending on how big a hit the thing took. But that's your worst case scenario. But, you know, if it's me,

[07:04] I'd probably back off on the lifestyle a little bit and keep the 401k going and let's get fix this thing in a couple of months, but maybe you could do it either way. Yep, absolutely. So good. Good practical advice, some motivation to get back because that'll intense to fund that back.

[07:17] And again, the importance of it. And we've been saying this during those whole pandemic conversation that, you know, getting out of debt and having cash available and having a plan, it works. It works during the good times and it works during the crisis.

[07:29] And so knowing that you're in control. If you get the call and you answer it, and it's the wake up call, answer the call and say, never again. I'm now awake.

[07:41] I now realize about this. Maybe I was kind of in a haze and I wasn't paying attention. I kind of was doing Ramsey-ish or I hated Dave Ramsey or whatever, Dave Ramsey cuss worded my house. Whatever, I don't give a crud, whatever the deal is. But the phone rang.

[07:54] Are you awake? Never again. Don't let yourself ever be there again. Yeah, keep that urgency with you outside this pandemic. Keep it going, let that be your motivation for sure. Well, thanks for coming on.

[08:07] I'm honored to be in the chat and emergency phones. I love it.