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My husband and I are in pretty good shape financially. We make about $250,000 a year with about $50,000 in the bank and no debt, and we’ve set aside money for our children’s college funds. Currently, we owe $70,000 on our home. I want to use $40,000 of our savings to pay down the house then rebuild our emergency fund. My husband disagrees. What do you think?
You’re right about one thing. You guys are in really good shape financially, partly because of planning and wise choices. The problem I see is this: What if you have an emergency but no emergency fund? You’re living on an income of a quarter million dollars a year, and that’s fantastic, too. But I don’t like the idea of you sitting there with just $10,000 in savings. In your world, $10,000 isn’t much at all.
Baby Step 3 of my plan says that you set aside three to six months of household expenses. You guys could cheat a little bit, down to the three month side of things, but I still don’t think $10,000 will cover three months of expenses in your household.
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In my opinion, $10,000 is too low. But to be honest, $50,000 is probably a little much. I’d look at a number somewhere in the $20,000 to $30,000 range for an emergency fund. Then you could throw the remaining cash at the house. I mean, let’s face it. If you did that, with your income, you could roll up your sleeves and pay off the house by Christmas!
My husband and I would like for me to be able to quit my job and stay at home with our kids. We’ve got a little money saved up, but we’re not sure we could make it on just his salary. The money would be very tight. In your mind, how do we know the difference between being financially responsible and relying on God to provide?
This is a great question! I admire the desire to be at home with your kids, and that you realize you can’t just act impulsively and call it faith. This is a concept that’s misused and misunderstood a lot.
If you can’t make it on just your husband’s salary, then you’ve got to develop a game plan that involves a written monthly budget and some lifestyle changes. If you do this with diligence and sacrifice, chances are you’ll be able to make this happen and not bankrupt your family. This could also mean that you start a small business on the side—something you could do from home—to offset the difference.
Having faith that God will provide requires study of the Scriptures. But God also tells us that you need the maturity and wisdom to plan your direction. The Bible says, “The diligent prosper. He who is impulsive exalts folly.” Folly is a fool in action. It’s kind of like the guy who closes his eyes, jumps in the pool, and hopes there’s water in there—and calls that faith.
I love the idea of you coming home to be with your kids, Michelle. Just make sure you develop an intelligent plan, and mix intellect with faith.
* Dave Ramsey is America’s trusted voice on money and business. He’s authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. The Dave Ramsey Show is heard by more than 5 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.