How to Calculate Your Emergency Fund [Dave Ramsey Method]

Here is how to calculate your emergency fund using the Dave Ramsey method. With the proper savings amount, you will feel more at peace while working on your financial goals. Also find a free Google Sheets emergency fund calculator below!

What Is an Emergency Fund?

An emergency fund is an account of money set aside for unexpected expenses. Instead of having a lump sum of money stored away and calling it your “savings,” this is a specific fund for emergencies. You aren’t intermingling it with vacation savings, car savings, or anything that is expected or unnecessary.

What Is Considered an Emergency?

A true emergency is described as “unexpected, necessary, and urgent” by Ramsey Solutions. If you find out you are expecting a third child and want to get a minivan, that’s technically not an emergency. In that situation, you would have time to develop a plan to buy the new vehicle. However, if your car breaks down and you need to buy a new part in order to drive it to work tomorrow, that might qualify as an emergency because it’s unexpected and necessary in order to get to your job.

How to Calculate Emergency Fund Using Dave Ramsey Baby Steps

I’m an advocate for following Dave Ramsey’s Baby Steps, so that’s the method I will use to help you determine your emergency fund. Baby Steps 1 and 3 tell us exactly how much to save in our emergency funds (Later on, I’ll share a couple other methods for determining your emergency fund.).

Baby Step 1

If you have debt (beside a mortgage), you are on Baby Step 1. Baby Step 1 tells us to save a starter emergency fund of $1000.

Baby Step 3

After you have paid off all of your debt (besides your home), you then move on to Baby Step 3. Baby Step 3 is to save a fully-funded emergency fund of three to six months of expenses.

If you have a double-income household, you may only need to save three months of expenses. However, if you are a single-income household or have any other reason to believe your financial situation is not as secure, you may want to save six months of expenses. Since we are a family of six living on one income, I definitely feel better saving six months of expenses for our situation.

Is $1,000 Enough of an Emergency Fund?

I don’t know about you, but when I think about having only $1,000 in my bank account, I feel nervous. This is one of the Baby Steps that I see criticized by young adults the most. How could Dave Ramsey ask people to only save one thousand dollars when $1,000 barely covers most emergencies?

Like other young adults, I used to think Dave Ramsey’s methods were a little outdated and that he probably didn’t have a logical reason for picking $1,000 other than it sounded like a good number. But as I listened to The Ramsey Show more, I learned that Dave has actual reasoning behind this starter emergency fund amount.

Did you know that a third of Americans have no more than $100 in their savings account? And almost half of Americans can’t cover a $1,000 emergency fund. That means many of these people are depending on credit cards for emergencies. These statistics show that $1,000 is actually an accomplishment for many American families. I know I have found myself in the position where we didn’t even have $1,000 and had to use a credit card for an unexpected expense.

In addition, saving $1,000 is an easy goal to start with. Many people can scrounge up their first $1,000 within a month.

You would be surprised how many things $1,000 can cover, and if your emergency happens to cost more, there may be other options, such as payment plans, to help in those situations.

What If I Have More Than $1,000 in My Emergency Fund?

If you have more than $1,000 in your emergency fund and you are on Baby Step 2 (paying off debt), Dave Ramsey would tell you to set aside only $1,000 and throw all the extra money towards your debt. It is better to not owe anybody anything than to have a big pile of cash sitting in your bank account.

If you are past Baby Step 2, then move on to the next question.

What If I Have More Than 3-6 Months of Expenses in My Fully-Funded Emergency Fund?

If you are on Baby Step 3, you should save 3-6 months of expenses in your fully-funded emergency fund. If you prefer to have more than that, you can raise the amount to what makes you feel comfortable. However, Dave Ramsey says there is usually no reason to hang onto more money, unless you are saving for a certain upcoming expense. If you are saving for something outside of your EF, such as a new car or vacation, you should put that in a separate account.

If you are ready to move on to Baby Step 4, then you would put your extra money (after fully funding your EF) towards retirement. Dave Ramsey recommends investing 15% of your household income in retirement. If you STILL have extra money after that, continue going down the line of Baby Steps to determine where to put that money.

Other Methods to Calculate Your Emergency Fund

Besides Dave Ramsey’s Baby Steps, there are many other methods to calculate your emergency fund. One method is saving $1,000 for each member of the family. That would be $6,000 for our family of six, which feels a little better than having only $1,000 while paying off debt.

Another emergency fund method is to save one month of expenses. This is a bit more manageable than a fully-funded emergency fund, yet provides a bit more of a cushion than just $1,000. It might also benefit the specific family’s financial needs better, since it’s based off the family’s income. Having one month of expenses saved can give you the feeling of peace and security, knowing that you can survive a month in the event of a job loss.

How to Build an Emergency Fund Quickly

1. Make a budget to determine how much margin you have in your budget. If you don’t have a budget, you can’t get clear on how you can save money.
2. Determine what unnecessary expenses you can cut back on while you are saving.
3. Sell extra things around the house. Having nice things in your home is not worth the loss of peace when you don’t have a solid emergency fund.
4. Pick up side gigs like Door Dash, babysitting, etc. until you reach your EF goal.
5. Do whatever it takes to find extra money. Hustle for a short period of time, so you can build this up quickly.

Free Dave Ramsey Emergency Fund Calculator

I decided to make it easy for you and created this simple emergency fund calculator using Dave Ramsey’s Baby Steps!

Open the calculator HERE. You will have to make a copy of the Google Sheets template to use the calculator.

Instructions

First, select which Dave Ramsey Baby Step you are currently on.

If you are on Baby Step 1, then the calculator will show that your emergency fund amount is $1000.

If you are on Baby Step 3, you must enter the amount of your monthly expenses next. Then, the emergency fund calculator will show you two options for your emergency fund: a low amount (three months) and a high amount (six months).

Conclusion

Now that I’ve explained the emergency fund in detail, I hope you have a clear idea on how much you should have in yours.

If you’re still in the “paying off debt” phase of the Baby Steps, don’t worry so much about how little $1,000 sounds and just focus on paying off the debt as quickly as possible. Not having debt hanging on your shoulders will bring you so much peace. Then, saving the fully-funded emergency fund will feel even better!

Just make sure to only use it in true emergencies and replenish it after using it! What do you think is a good emergency fund amount? Tell me your thoughts below!

If you’d like a free Baby Steps printable to help you track which Dave Ramsey Baby Step you’re currently on, you can find mine here!

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