Debt Free to Baby Step 3: Now what?

We just recently paid off $110,000 in debt.  We are 100% debt free! It is an amazing feeling, but it left us with a “now what?” feeling, because from the moment we decided to take control of our finances, our goal has been to become debt free. Learning to go from debt free to baby step 3 is a big shift! 

As you may know, we follow the Financial Peace University principles from Dave Ramsey, so we turned back to our materials to see what was next.  The premise of the class is obviously financial peace, but the journey to get there comes in seven baby steps.

Before we started the class we had unintentionally done baby step one – save $1000 in an emergency fund.   Becoming debt free was baby step 2!

Debt Free to Baby Step 3

Our next step is to save 3-6 months of expenses in an emergency fund.  It may seem like a LOT of money to save – and it is. However, this will give us peace of mind.  If one of us were to lose our jobs, or if we were to get in accident, or something else unexpected were to come up, we would be okay.

To figure out how much to save, we looked at what our minimum expenses are each month. First we added up our TOTAL expenses for a month.  Next, we only factored in our main living expenses. This time around, we opted not to add in things like clothing, fun money, etc. We decided only the necessities in case of an emergency.. We are aiming for an emergency fund that is about 3 months of FULL expenses, which happens to be about 6 months of bare minimum necessities in our case .

A New Challenge

This baby step is a new challenge for us. Being in debt was sometimes easier, because we had a sense of responsibility.  We owed someone ELSE money. I don’t like owing anyone anything, so I wanted that feeling to be DONE. Now that we’ve paid off the debt, all our money is freed up for our own uses!  While we KNOW that this emergency fund is super important (and will become crucial as we get older and gain responsibilities like a house and kids), it feels different now that the money is ours. We can do with it what we wish, and it’s so tempting to use the money for a trip or things like that!  But as Dave always says, “Children do what feels good, adults devise a plan and follow it”.  We are doing the hard work now so that later we can more fun and more freedom!

As we work towards completing the journey from debt free to baby step 3, we are working on keeping the focus beyond that. We are saving now so that we can buy a house, have a family, travel, and GIVE in the future. If we lose focus of that, we are much more likely to waste our money on the little things now. We are determined to keep the same gazelle intensity that we found paying off debt and only keep moving forward!