The Rachel Cruze Show - How to Bulletproof Your Emergency Fund

Episode Date: February 17, 2020

This is the third episode in my series covering the Ramsey Baby Steps, and I’m going to be real with you: Baby Step 3 is hard. As you save up three to six months of expenses for your emergency fund, there aren’t any quick wins or milestones. But it’s your last big sprint before you finally get to build wealth and give like no one else, so I’m here to keep you motivated!   In this episode of The Rachel Cruze Show, you’ll learn:   3 keys to having a bulletproof emergency fund How to find cold hard cash in your freezer A money tendency I used to be really immature about   Sponsors pay the producer of this show, The Lampo Group, LLC, advertising fees for mentioning their services or products during programming. Advertising fees are not based upon or otherwise tied to any product sale or business transacted between any consumer or sponsor. The following sponsors have paid for the programming you are viewing:   — Zander Insurance   Resources (everything mentioned in this episode): Zander Insurance Financial Peace University Learn more about your ad choices. Visit megaphone.fm/adchoices

We had about close to $100,000 in debt. When you take that mindset of knowing that you can spend within your limit, then you can have the patience to really save money. Once we started paying things off, then we could see a light at the end of the tunnel. What's your why? What keeps you doing this? To see your savings account grow, it's such a secure feeling that knowing if something happens are covered. Hey, everyone, welcome to another episode of the Rachel Crew Show podcast.

I am so glad that you're here, and I'm really excited about today's episode because today we are in part three of our series, which is Baby Step 3. So what is Baby Step 3? Well, first, let's review 1 and 2. So Baby Step 1 is getting a $1,000 starter emergency fund saved in the bank. Baby Step 2 is getting completely out of debt except for your house using the debt snowball. And Baby Step 3 is having three to six months of expenses in the bank. And we want you to get to this point where you carry. more about savings than stuff. So in today's episode, I'm going to tell you how to bulletproof

your emergency funds, and we're going to talk to a super motivating couple who is currently in this step and stay in the course, because I want you to do that too. So here's today's episode. Let's be honest, though, baby step three, it's hard, yes? Because when you're getting out of debt, you're getting all these quick wins, you're hitting milestones, and you're like, yes, the celebration continues. But building up your emergency fund can make you kind of to feel like, wamp, wamp. All we're doing is saving. But listen, don't let your foot off the gas. You want to stay intense here because this is what it's about. You guys, this is the final sprint. So after the savings is done, you can actually breathe a little. Then you can focus on your

retirement and your kids' college and doing stuff for your future. You really do. You have a buffer between you and emergencies. And honestly, that is not the case for most Americans. In fact, 40% of Americans, they go into debt when an emergency hits. That means if the car breaks down, they use debt to cover it. So they end up adding interest and payments onto something that was already a crisis. It turns a really tough situation into many sleepless nights by dragging it out even longer. This is because the personal savings rate in America is less than 5%. Five percent, you guys.

In the words of my friend Chris Hogan, that is not. okay. Now listen, if you don't learn to shift, you're spending into savings, you'll never get out of the cycle of Baby Step 2. So you're either naturally a spender or a saver, and I am a spender. And I can tell you, when I look back on my life, a lot of my spending impulses came out of a place of immaturity. It's kind of like a five-year-old just being like, I deserve it. I want it. And so I really did. I had to rein in my spender tendencies, but once I did, the idea of security felt so much better than spending to me. And when you recognize that, you can take the impulse out of it and learn to spend on a strict budget. It's way more mature than just doing what feels good in the

moment. So when you take that mindset of knowing that you can spend within your limit, then you can have the patience to really save money. And it's so worth it for the security of just knowing that we're good. We have money in the bank. We have money saved. This is a totally different feeling than having a goal to save towards something special. Listen, saving towards a house or a new car or a trip. Naturally, that's motivating because in our culture, like, we want something tangible for our work. So it's understandable. But in emergency funds, you can't really feel it tangibly. I mean, unless I guess you, like, cash it out and, like, have a bunch of dollar bills and, like, throw it around at your house. I mean, I guess you could do that. But it's a different feeling,

Okay? When you have an emergency fund, there is a gratification that you just have a peace of mind. And remember, this is about putting money towards your future instead of paying off your past. How easy could it be just to quit your job if you had money in the bank? Yes, this step, it really gives you freedom. And there's no easy path to baby step three. You have to work at it, but it is so worth it. Remember, debt steals your future, saving secures it. So let's talk about how to bulletproof your emergency funds. All right, when it comes to your emergency fund, there's three things that you need to know to make a bulletproof.

Number one, how much should it be? Well, the good news is, since you've already completed Baby Step 1, you already have $1,000 saved. So great. Now you just need to know two simple things to determine how much more money you need. Number one, do you first lean towards three or six months? So those of you that might lean towards like just having three months saved, maybe you have dual income, a stable job, you feel good about where you're at, you might just need three months. Those of you that lean more six months, maybe you're a single income family or a single person, your commission-based, freelance, irregular income, a little bit of like instability there. Maybe you want more like six months. Now, if you're married, there might be some compromise. I find that most men just want three months. saved, and most women want six months saved. So sometimes just got to meet in the middle. All right, next, you need to determine your expenses. So we always say your emergency fund needs to be

three to six months of expenses, but people fall in two camps here. For some people, their expenses are just the bare minimum, like the four walls, that they have food, shelter, utilities, gas, like the main things, those are covered. And they consider that expenses, which is great. Others of you are on this camp over here, which is where you want your lifestyle to stay exactly the same. So like if someone loses a job, you have enough money say that your lifestyle

doesn't have to change. And so Winston and I, we looked at our budget, and we said, okay, here is how our lifestyle could say exactly the same. So we took that number and multiplied it by six. And that is ours. Again, neither camp is right or wrong. It's just what you want.

All right, the second thing that you need to know to bulletproof your emergency fund is where do you keep your emergency funds? any savings account will do. I really recommend a money market account, though. There's also banks online, and they pay more interest than just traditional banks. But do your research. You don't want any hidden fees that will hit you if you pull the money out.

Because remember, this is like insurance. It's not an investment. This emergency fund is insurance. It is not an investment. I will repeat it again and again again. You want to be able to get the cash out quickly. So put it somewhere since you're not tempted to use it. on non-emergencies, which brings me to number three. What is an emergency and what isn't? So three

questions to ask yourself, is it urgent, is it unexpected, and is it necessary? So a vacation you're dying to take, not an emergency. The car breaks down, an emergency. Your air conditioning breaks in mid-August while you're pregnant. That's an emergency, yep. A new couch, not an emergency. Your kid hits their head on the coffee table and needs four staples. Mm-hmm. May have happened to me as well. An emergency, yes. So you have to figure out what is an emergency and what isn't.

But it also comes down to you and your spouse being on the same page about this, and you really need to do what feels right for your family. So to get started, download my cheat sheet on how to calculate your emergency fund, and I will put a link in the show notes. All right, coming up next, I'll interview a couple who's on Baby Step 3, and they have become obsessed with saving. We felt stressed, overwhelmed. We were making a decent income,

but not knowing where our money was going month to month, there was that overwhelming feeling of this is how it's going to be forever. Back in 2014, we had about close to $100,000 in debt, and I was laid off for my job. That was a scary feeling, and only having a little bit of savings was a terrible feeling. So we made the decision to sell our house, take that money, pay off credit card, pay off a car, pay off a school loan, and then we were left with about $40, $38,000 worth of debt.

Once we started paying things off, then we could see a light at the end of the tunnel. But it took a little bit to get there. At first was very overwhelming. Then we made like a first big payment. The first was like $6,000 or $7,000. Then once that was gone, then the momentum bill. You start rolling through the debt snowball, and the more you get through it, then it's like, okay, we can do this. And then it was exciting, and then it wasn't as overwhelming, and anxiety was calm at that point.

We can do this. This is short term, and it's going to be over. Once we started Baby Step 3, it got a little easier because we finally felt like we were working to actually save something. So now knowing like, okay, we're going to save as much as possible. so if we ever get in this situation again, we don't have to worry. I mean, I get a little obsessive with the saving because it's security, and security feels good.

You know, it's a lot of sacrifice, but if you kind of step back and look at, okay, at the end of this, it's going to be a much bigger payoff than whatever it was we were going to buy or do at the time. I feel like now I'm actually making money and I'm more motivated,

and I want to make more, have a little more of a hunger because I don't feel as tied down to loans. It just feels better. It's a better feeling. And just feeling that security of, hey, if something happens, we're going to be okay. And it really changes your perspective on working and on life in general. Well, Nicky Amanda, thanks for being here. Thank you.

Yeah, thanks for sharing your story. I love it. You guys started on the baby steps and kind of started your money journey. So tell me what caused you guys to begin this whole process. So I think, you know, before we had started a financial peace university, we were stressed out every month, not knowing where our money was going. you know, get to the end of the month and scraping money together to see, are we going to be able to pay our mortgage, or we can be able to, you know, buy food. Yeah.

And it was just that overwhelming stress every month. It's like, okay, we have to do something different in our lives if we're, you know, if we're going to break the cycle of this. And so that's kind of why we had started a financial peace university and start on the journey. Yeah. So you guys are living a pretty, like, quote, unquote, normal life, you would say. Because that's like that's how most people function with their money. But you got to the point that it's like the stress and just the mundane task of like,

we're stuck in this process caused you to change. Yeah. And it was kind of looking at, you know, the incoming and outgoing every month. It was everything you make was continuously going out and you were left with nothing at the end of the month. You're working so hard, going to your job every day. And it's like there has to be more than this. Totally. So what kind of got you all?

what introduced you to Financial Peace University? I was checking my email on the way home from driving to Illinois, driving back here to Tennessee, and something popped up in my email about Financial Peace University at a local church. And, you know, I knew kind of, I knew about Dave Ramsey and the baby steps and everything, but we hadn't actually, you know, tried to live by it.

It was kind of like, yeah, I understand it. And then I was like, hey, do you want to try and do you want to do this? And she's like, yes. Yes, absolutely. Yeah. Let's just, let's try it. What do we have to lose? Exactly.

There's nothing to lose. It can't get much worse than kind of what we're doing right now. I married into a lot of debt with him. So for me, I had no emotional attachment to that debt, which was frustrating. And I think I was probably a little bit resentful. And a lot, okay. And it was just, I was exhausted.

I was sick of going to work, working so hard to pay his school loans. I mean, I was our school loans, but it did not. I feel like that to me. Did you ever get to a place then? Because I do hear that a lot with spouses of like, okay, one spouse brings in a ton more debt than the other. How did you navigate that? Like, or how did you overcome that?

Do you feel like you got in a better spot or were you always frustrated through all a baby step two? Like, what was it like for you? It was hard because I came in with zero debt. I came in with no debt and a savings account. So then I come into, you know, $80,000, $90,000 in school loans. and that was very overwhelming. So we had to work through a lot of those issues.

Yes. I'm sick of working to pay off your school loans. Like, let's kick it in gear. And I felt like I was kicking it more in gear. And he was just kind of like, you know. Yeah. And he's a dreamer, and I'm the nerd. So the fact that the dreamer wanted to learn about money,

I was like, sign up now. Do not change your mind. Okay, I want to interrupt really quickly. Number one, I love her. her honesty. Because listen, I preach on this podcast all the time that when you get married, your money becomes our money. We, we're in this together. And it's not his debt or her debt. It is our debt. But, you know, you can say that. But sometimes taking that emotional ownership is a lot harder than just preaching it over a podcast. I really appreciated her honesty of saying,

I felt like I was working so hard to pay off his debt. And I know that it's our debt, but it self felt like his debt. So those of you out there that struggle with that emotion, it is real. That's a real thing. But I would continue to push you to grow and to take that ownership together and say, okay, it really is our debt. And also, I love that they talked about knowing who is the free spirit, who is the nerd, who's the dreamer in the relationship, who's the realist, and having that conversation because knowing it, naming it and claiming it and saying it out loud to each other, I think brings a lot of peace. Some couples just function in this idea that we're different and you kind of just, you have this rub and it was like, oh, but it's amazing. When you just

communicate and you talk it out and you're honest and you're vulnerable and you're being real with your spouse. Not only does that deepen your marriage and your relationship, but it helps you guys get on the same page and win with money faster. So have that conversation, figure out who is the dreamer, who's the realist, who's the nerd of the relationship, who's the free spirit, talk about it and own it and celebrate each other's differences in the process. And it was so worth it. The nine weeks and all of that. Yeah, it was very much kept us accountable. To have to go somewhere, you know, you have to leave your house, you have to go to this class. You know, you watch Dave talk.

You know, you go through the conversation pieces in the book. And you talk to others who are going through a very similar experience, some worse, some not as bad. But it kind of makes you feel like, okay, like we're normal, we're all, but we're all in this together to try and break the cycle. So it gives you that accountability person to bounce it off of, to give you encouragement when you get a little down on the, thing. So it was totally worth it. Yeah, that's awesome. Love the experience. So good. Okay, if you guys are curious about it, make sure to click the link in the show notes, as we have all information about Financial Beach University, make sure to check that out. Okay, so you guys are on Baby Step 3, which is big. That's a big deal. A lot. We talk a lot

about Baby Step 2 on this show and, like, you know, the idea of getting out of debt, but you guys have transitioned to Baby Step 3. So tell me about the difference between Baby Step 2 and Baby Steps 3 for you guys. You know, paying off the deck on Baby Step 2, you know, we got to the end of it. And for me, I was expecting like this big bang, this like parade and like, you know, the band going off and like, hey, you paid your debt off. And for me it was very kind of anti-climactic. It's like, okay, well, let's keep going next.

You know, but the, I would say the excitement of then, you know, instead of pay, saying other people your money, you get to keep your own money. It's a crazy thought. You keep your own money, put it in the bank, see it grow, and the sense of security, it's extremely motivating to be in that position. Makes you want to work more and work harder. Yes. It's a different why, so it's much more motivating. So I'm curious for you, Mandat, because he said, like, there wasn't like confetti and like this big hurrah after you paid off the debt. He was like, okay, it was up three now. Let's keep going. Did you feel a sense of relief? Did you feel any more emotion?

I was like, you felt the competitive intern was like, yes. I'm done with those student loans and I can move on and stop being mad about it. I can move on now. You own your degree, you own that knowledge, let's move on. Yes. And so would you say it's as motivating as Baby Step 2? Because sometimes people say Baby Step 3 is a little bit hard to get through because they're just like, oh, just saving money, saving money. But you guys feel energized by it.

I think it's more motivating. Okay, that's good. Yeah. I believe it's more motivating because you're seeing that. You really feel like you're actually winning, I guess, in Baby Step 3. It's like, Baby Step 2 is they'll wear you down. You're paying for your past. I mean, it's like, yeah, throwing money backwards.

Yeah, so Baby Step 3 is just a nice breath of fresh air. Yes. Saving money. It's a different feeling. Oh, I love it. So you guys, I mean, you really have changed your whole philosophy when it comes to money from not just paying off debt, but now actually saving money. And you actually have a positive net worth.

which is unlike a lot of people in America, right? They don't have savings. So what's your why? What keeps you doing this day in and day out? What keeps you on baby step three? What's going to cause you to do babysat four or five and six? I want my son to grow up and see a positive spending and saving and to be different and to go to college with no debt and come out with no debt

and just have a fresh look on life. and not be worried about $80,000 in school loans. We want to live. We want to travel. We want to live our life. And I don't want to be bogged down with Sally Mae. So that's my why. That's good.

Yeah, I agree. You know, I want to see a lot of people working when they're older and can't retire. And I think that's a huge, that scares me a lot, the thought of that of not being able to retire. And, you know, having to work as opposed to wanting to work and enjoy, you know, our lives together as we get a lot. older. So that's kind of my big thing is I want that. I want to look out for my future and our future and be able to retire and enjoy our lives. All right. I'm going to interrupt there really quickly because that's one of my favorite questions right now to ask people is your why. Why are you doing this? What is it in your life? What's the fear? What's the dream? Like, what is happening in your

heart and your mind that's causing you to change the way you're handling money and you're willing to sacrifice things in your life in order to get ahead. But why? What is the why? And so figuring that out for you guys is so, so key. So look at your life, ask yourself that question and figure it out for you. And if you're married, talk to your spouse about it. Say, hey, and your whys can be different. This couple, their whys are different, and that's fine. But just figure out your why and get on the same page and know what your spouse's why is and know what your why is. So how much debt was paid off in total? $38,000. $38,000. Seven months.

In seven months. And then how much is saved now? At the end of this month, I think we're going to be close to $12,000. Oh, my God. Yes. Okay, so a lot of the audience watching is on Babysp 2. They're paying off debt, but there's a percentage of them in Babysp 3. So those in Babysp 3 that may not be as motivated as you guys are in Babyset 3,

what advice would you give them? Just keep going. I mean, to see your savings account grow, I mean, that's, it's, it's, it's, it's, It's such a secure feeling that knowing if something happens, they're covered. Yeah. And if you've never gone through, so I guess for us, we've gone through me losing my job and know how it feels to not have that savings account there. And I hope people, I hope you don't have to experience that.

But from somebody who has and us that have, it's an awful experience if you don't have savings. So just know that, you know, that is your security. That's if something happens, that's what it's there for. That's your plan B. So stay with it. So good. Well, you guys are awesome. Seriously, thank you so much. Coming on, sharing your story. It's so motivating seeing people do this stuff day in and day out, and that's you guys. So keep rocking it. So great. So great.

Oh, I just love their story. They are awesome. And I hope you guys felt motivated here in this episode to get on track and push through Baby Step 3. Thank you so much for listening. And if you've not subscribed to this podcast, make sure you do that. And if the spirit leads, you can leave a review if you liked the episode. And everything that we talk about in this episode, there'll be a link in the show notes. So again, thanks you guys for listening. And remember to take control of your money and create a life you love. If you guys enjoyed this podcast, we have more from the Ramsey Network, like the Chris Hogan Show.

I am so excited to be able to talk to you all week in and week out. We're going to talk about your money, your life, your dreams, and your goals. You know why? Because I'm your coach. whether we're talking about building wealth, paying off your home early, investing, paying for college, and guess what, how to become an everyday millionaire. We're going to focus on taking your calls because you matter to me. Together, we can do this.

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