Question about Freedom accounts

Avatar for colomom99
iVillage Member
Registered: 03-28-2003
Question about Freedom accounts
2
Tue, 11-16-2004 - 5:13pm

HI all! I am asking those who use Dave Ramsey or any of the other gurus about the freedom accounts. Someone who goes to Ramsey classes said they were told to fund $1,000 in an emergency account even before launching a debt reduction plan. Is that right? I am snowballing like mad and have reduced my debt by nearly $1,000 from when I started posting here a month ago. I have a tiny savings account from payroll deduction -- only $25 a week which sometimes gets tapped. I think there is a whopping $100 bucks in there now. But I thought the idea was get rid of debt before saving. But then I heard the idea is to have a freedom or emergency fund in place so you won't ever have to use credit cards for things like birthdays, car repairs etc. I'm confused.

Also, if you have $1K in a freedom account but have to take out a chunk, do you then rebuild it first before snowballing? Thanks, Jenny

iVillage Member
Registered: 07-06-2003
Tue, 11-16-2004 - 8:36pm

According to Dave, he does say before tackling debt to start an E-Fund of $1K, $500 if you earn $20K/year or less.
If you need to use the E-Fund then the priority shifts to getting it back up to the set amount before refocusing on paying off the debts.

It does make sense because often people are so intent on paying down the debt than when a real emergency happens, they end up more likely to use credit because they had no cushion.

In our case when we got "gazelle like" towards becoming debt free earlier this year, although we make more than $20K we felt that $500 was enough of a buffer to handle most unexpected stuff while we actively paid down our debts.

I thank God in saying that we didn't have to touch the E-Fund; that was a real blessing!

Many people tweak and modify the plan to suit them but I think the plan is well founded and we're proof that it can work!

Kassandra

Kassandra

"It is said that life has its peaks and valleys.  The challenge is to accept them equally and experience them

iVillage Member
Registered: 05-30-2003
Wed, 11-17-2004 - 12:14am

Yep, the e-fund is mainly for peace of mind. Well, that and all the truly unexpected things that seem to come up at the worst time, lol!

We had to raid ours a couple of times this year, but if we hadn't have had it in place, well, you can take a guess what we would have had to use! (yep-starts with 'c', but it's not cash...;D)

Right now, it's low again due to some unexpected auto repairs. But, I'm actually finding that $500 may be enough for right now, until we get past the holidays.

Yes, it does seem odd to get all this money together and then not use it for something 'productive.' Thing is-it IS being used for something productive-peace of mind. It is a good thing to rebuild it after using it, simply because if you get hit with emergency after emergency without doing so, you may end up having to use the credit cards again, which can be a major bummer.

I'd say do what works for you. When DH & I started with the Dave Ramsey thing, DH made a very good observation, "Well, we can give it a try. Sounds like his plan works, and it looks like ours didn't so much."

Good luck!
Lisa