That's "What Would Dave Ramsey Do?"
No, I do not follow Dave's advice to the letter. I slowly built my $1,000 emergency fund while paying off my credit card debt. I have upped my retirement and savings goals while I still have student loan debt. His definition of "gazelle-like" probably does not include getting his hair done every 8 weeks.
But I do generally follow his "Baby Steps"philosophy. And I've run into a problem.
There's no, "Save for a down payment on a house and then get a mortgage" baby step. When is that supposed to happen? Most of his stuff seems to assume people already have mortgages, and are paying them off vigourously. And I know the Davester isn't a fan of any debt, so maybe he thinks I should save for a house and pay it in cash?
Not. Going. To. Happen.
I will be debt free by this October. I'll be maxing out my Roth IRA by putting $419ish per month aside. And that should leave me with about $300 per month to put into my savings.
So, do I put all of that towards Baby Step Three: 3-6 month emergency fund? Or should some of it go toward a house down payment fund? I know it wouldn't be smart to buy a house without a fully-funded emergency fund, but I also don't want to put off buying a house until I'm a million years old.
Here's my tentative plan: with my $300 per month that I am planning to save, I am going to put $200 toward my e-fund and $100 toward my house down payment fund. Even though I'll probably leave all of it in my Summer Saver to earn interest money. But, I am going to start a spreadsheet to note what the amount in there should be split towards. That way when it dumps into my checking account in August of 2012 the decisions on what to do with it will be made.
Any other Dave Ramsey fans run into this question? Does he have an official answer on this?
What are your bills a month? If you have no house payment I would strive for a three month bare bones savings. We have a house payment ,a car, payment, power, phone. We do not have to water a lawn if we are in emergency mode. In emergency mode you go get food stamps, or food bank or church. Emergency ,means no job, no income it does not mean all the money it takes you a month to live now. Save three months income then fully fund a down payment. Also start looking for repo's, they are all over right now. If you have no debt and a $9,000.00 emergency fund the bank is seriously going to look at you if you offer to buy a house. You won't have to use the fund but you will look pretty darn good to them.
ReplyDeleteI've heard Dave discuss this on his radio show and he does recommend a fully funded emergency fund before purchasing a house. Dave's first choice is to pay cash for a home, but even he acknowledges that this isn't feasible for most people and "approves" of 15 year mortgages.
ReplyDeleteWe purchased our first home with a 20% down payment and that left us with roughly $2,500 in our savings account. We also had student loans and car loans at the time. But, we had 2 income sources (DH and I) and could meet our monthly obligations on just one income (not sure DR would care about that, but I felt like we had a safety net in case one of us lost our job). It worked out okay for us, but if I could go back in time, I would have sucked it up in the apartment for another year or so to beef up the savings.
The 7 Baby Steps work the best when you are gazelle intense. You should start saving for a home after you have completed all the steps that apply to you. For example, only steps 1-4 apply to me.
ReplyDeleteIf you were gazelle intense and took the money currently going to your retirement and savings you would be be out of debt prior to October of 2012.
Take this money and pour it into your 3-6 Month eFund you would have it in no time.
Then start to contribute 15% of your household income to your retirement Roth IRA/403B.
After all this is in place, you could funnel all unallocated money in your budget to a HOUSE FUND, which will most likely build really fast.
Have you run your numbers apply the DR logic to see where you would be or how long it would take you to get where you wanted to be.
Appreciate yoour blog post
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