DR with a twist?

[micah_mae_]

I don't remember where I read it but I read an article recently talking about changes that should be made to DRs baby steps.

Mostly it was: $3000 instead of $1000 for an emergency fund, paying off debt by interest rate vs balance and 12 months of savings instead of 3-6.

What do y'all think? I agree about the efund because honestly our deductible for car insurance is $1000 so that would be our whole efund if we needed it (well granted our efund is about $200 right now so we'd be screwed anyway).

[crunchy_mommy]

I don't follow DR but from what I understand, the baby steps are designed to help you see progress FAST. That helps you stay motivated to continue. If you can keep yourself motivated on your own, not get discouraged by how long it may take to reach your goals, I do think it's wise to pay off higher-interest debts first, and to have a larger EF. I think even $3K is way too little for an EF... I'd probably say $10K minimum, especially if you own a home etc., but only after "bad" (non-tax-deductible) debts are paid off. Really, it's a bit of a juggling act... if you have $20K in high-interest credit card debt, it's probably better to work on paying that off before growing the EF. If you have $3K in low-interest student loans left, it might make more sense to build the EF to $3K or more and then focus on the loans.

[EmsMom]

I agree with above poster, the DR techniques are mostly to built emotional momentum and don't necessarily make the most sense from a fiscal standpoint.  Personally, I don't think it makes much sense to pay off a very low interest loan, say, instead of investing.  For me, 1. pay off high interest credit card debt, 2. (somewhat concurrently), save up a 6 month or more emergency fund.  3.  invest  in retirement vehicles such as IRAs or 401K (again concurrently with the EF savings but certainly after paying high interest debt),  Before I paid off a low interest mortgage, I would be more inclined to invest in different areas, perhaps rental properties or dividend paying stocks.  Ramsey plays it too safe, but I have become extremely disciplined with my money -- for others that kind of discipline seems to be what they need.  I
 

[3timesamom]

We never went to an efund of 1,000 we kept it at 2,000 while we were going through the baby steps. I really think it is about your comfort level and where you are starting off on your journey. Some people are not home owners and some are. If you are I think it is only wise to keep a heftier savings.

[Basylica]

Most of the gurus suggest you have atleast 6m of salary in savings/EF once you are debt free.

I've got less than a year's salary in savings, however I only need about 1/3rd of my salary if I were to lose my job. So between unemployment, savings, and child support (and not needing to pay daycare) I could probably pay my bills for around 3yrs on my current savings.

The low number EF is to give you a buffer so you don't fall back on credit (with interest!) incase something unpredictable happens, and also to get you used to saving for things over credit for things.

Once you get majority of your debt paid off, you def should have some substantial savings built up too :)