Baby Step 1: have a baby emergency fund of $1000.
Is that enough? Let us take a closer look a possible uses for that emergency fund.
Average cost of a new transmission: $2000
Average time a family can last on a job loss with $1000: Two weeks
Average time to find a new job: 2 months
Average emergency medical bill: $5000
Obviously $1000 doesn't go that far anymore. The main problem with this step is that it is outdated. The idea is good but the amount is not enough anymore. 3-6 months expenses is what most advisers suggest but for a baby emergency fund while you accelerate getting out of debt 3-6 months may be to much. I suggest $3000 or 2 months of expenses which ever is less.
Modified baby step 1: Save $3000 or two months of expenses which ever is less.
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