Once you are debt free, except your mortgage, it is time to create your personal insurance against life's inevitable hiccups.
In Dave Ramsey's Baby Steps, the goal is to obtain financial freedom so that you can live and give like no one else. Baby Step One gives you a $1,000 emergency fund so that if the car needed repairs or the hot water heater went out, you would have a solution that wouldn't totally derail you from paying off your debts. Now that you are out of debt (except your mortgage) it's time to give yourself a true savings account.
Saving up for three to six months of expenses will be based on your individual situation. If you are a full time salaried employee with a stable income in a stable career field, you may only need three months of expenses. If your income is more volatile or your industry is currently unstable (ahem, real estate) then you may need to give yourself six months worth of expenses. If disaster happens... the car needs a new transmission, the roof has to be replaced, you break a leg, or you go a month without earning commission, you need to make sure that you are in a place where you aren't going right back into debt. This money shouldn't be placed in investments, it should remain liquid, and also shouldn't be considered 'fun money'. If you have goals of bucket-list vacations or saving up a down payment on a home, then we'll discuss how to work with those situations in the next Newsletter!