Dear Dave,
I will back on active duty soon in the armed forces. I’m debt-free except for my home, have been following your plan, and I’m about to start Baby Step 3. We are provided certain relief funds based on where you are stationed and other factors. Knowing this, how should I approach the next Baby Step?
-Kevin
Dear Kevin,
First of all, thank you for your service to our country. You’re on the right track. Baby Step 3 means having three to six months of expenses set aside for emergencies. Considering the stability of your employment situation, I think you’d be okay leaning toward the three-month side of expenses. It’s not like you’re a straight commission sales rep whose income can fluctuate wildly from month to month, right?
You’ll still have emergencies, though, and it’ll be your responsibility to cover them. Some of those may need to be addressed immediately. See what I’m saying, Kevin? Everyone needs an emergency fund. Just make saving for it part of your budget for a while, until you have three or four months of expenses sitting in a good money market fund with check writing privileges. You’ll be glad you did!
—Dave