Baby Step 3: Planning for a Fully Funded Emergency Fund

Right now, I’m in Baby Step 2, working on paying off debt with the snowball method. But I’ve already started looking ahead to what comes next, because Step 3 is a big one: saving 3–6 months of expenses in a fully funded emergency fund.

This step is about creating a strong financial safety net. It’s there to cover the big “what ifs” of life; job loss, medical expenses, or major home/car repairs, so you don’t slip back into debt once you’ve fought your way out.

Why I’m Thinking Ahead
I recently heard Jade Warshaw (Ramsey Solutions coach) talk about this step, and she made a great point: once you reach Step 3, the money shouldn’t just sit in a regular savings account. It belongs in a High-Yield Savings Account (HYSA).

Here’s why that stuck with me:

• Easy access when needed. Emergencies don’t wait, so it has to stay liquid—not tied up in CDs or investments.
• Earn while you wait. Right now, Ally Bank offers around 3.5% APY, compared to my local credit union’s 0.25% APY. That’s a big difference in how fast the fund can grow while it sits untouched.
• Keeps it “out of sight.” Having it separate from your everyday bank account reduces the temptation to use it for non-emergencies.
  

How Much Is Enough?
Dave Ramsey recommends 3–6 months of expenses (not income). That means looking at what it really takes to keep life running: housing, food, transportation, insurance, and other must-haves.

Three months may be enough if you’ve got stable work or a dual-income household. If you’re self-employed or just want extra cushion, six months gives you more breathing room.

Looking Down the Road
I’m not there yet; but thinking ahead helps me stay motivated. Knowing that Baby Step 3 is waiting gives me a vision for the kind of peace and stability I’m working toward. When the time comes, I want that money in the right place... growing, safe, and ready for whatever life throws my way.

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This blog series is based on my personal journey through Dave Ramsey’s Baby Steps. I am not affiliated with or endorsed by Ramsey Solutions. This is for informational purposes only and not financial advice.