02/05/2026
Baby Step 1 is saving $1,000 for a starter emergency fund.
Baby Step 2 is paying off all debt (except for your mortgage, if you have one) by using the Debt Snowball Method.
Baby Step 3 is saving up a fully funded emergency fund of 3-6 months of your expenses.
There's a big difference between that Baby Step 1 emergency fund and a Baby Step 3 emergency fund. When you're first getting started, getting $1,000 saved is a HUGE milestone. It's a mark of commitment to the plan, and it's often the first time many people have had that amount of money saved. Nope, $1,000 isn't enough for all emergencies, but it IS enough to take care of a lot of the minor ones that could come your way. The plan isn't to stay on Baby Step 2 forever, and only having $1,000 to fall back on should help to motivate you to pay off debt even faster so you can save a larger emergency fund after that.
Once you've paid off all of your debt, it's time to decide how much you'll need to save for your Baby Step 3 emergency fund of 3-6 months of expenses. To do this, add up what you spend each month on bills like rent/mortgage, utilities, gas, food, etc. (minus any savings or extra things you budget for). When you've got that number, multiply it by 3 or 6 to get the amount you need to save up. You may want to save 6 times that amount if your income changes month to month, or if you're a single income household. If you're married with 2 incomes, 3 months of expenses saved is probably a good amount for you since there's less risk that both incomes would go away all at once.
