Baby Step 3: Preparing for the Zombie Apocalypse

Note before we begin: By the time you get here, you’ve probably got a pretty good idea for what works and what doesn’t in your household. This post is to provide guidance, not gospel.

“When you are prepared for the zombie apocalypse, a hurricane is just a storm.”

We’ve all heard that one, and it’s true. We like talking about the zombie apocalypse because it’s a very good way to talk about serious subjects without the buzzkill of reality. Hurricane prep isn’t fun, or sexy, anywhere near the front of your mind. You know you need to do it, but come hurricane time you’re in line buying plywood like everyone else who didn’t prepare. But Zombies? Now you’re talking!

Baby Step 3 is the financial equivalent of preparing for zombies. If you are ready to have zero income from any source for 6 months, the AC in your house going out is a just minor inconvenience.

After paying off everything except the first mortgage, Dave Ramsey’s recommendation is to stockpile 3-6 months of expenses. Since you’ve just finished your debt snowball, just consider this your last debt. Take that gigantic payment you were making on your student loan and start sending it to your money market account and you’ll be there in no time.

So, three to six months of expenses, eh? Well, do I do 3? Or should I go the full 6? What if I want more than that?

That’s up to you and your spouse. If you’re young and single, 3 months is probably okay. If you’re married with 2 kids and you’re the only one that works, 6 months may not be enough in the Obama economy. You probably don’t want more than 18 months worth of expenses sitting in an account getting (as of today) 0.9% interest, because really if you have to live on savings for more than a year you’re going to be looking at liquidating other assets anyway.

Note that this is 3-6 months of expenses, not 3-6 months of income. Expenses would be defined as those reoccurring items that you need to survive, but you can extend that to keeping your standard of living. Contributions to savings, extra house payments, retirement, etc, would not be included in expenses. Cable, rent, utilities, and blow money would be. This is whatever you decide, but in my house it comes to be a little more than half of our take home pay (we’ve continued to keep a modest standard of living despite getting significant raises).

If you’re married, the spouse that wants more money in this account wins! Let’s say you do the math and your monthly expenses are $2,000. Six months of expenses would be $12,000. You think you could get by with $10,000 but your wife says she needs $20,000 in the bank to feel safe. She wins! Now, if she said $100,000 then you’d have a case for her being unreasonable, so unless it’s something like that then just let it go.

One thing to remember, though, is that Baby Step 3 MUST BE COMPLETE before moving to Step 4: Saving For Retirement! If you don’t have a house yet, you have to have your emergency fund fully funded before you can start saving for your down payment (Baby Step 3b)! Take these things into consideration when discussing how large your emergency fund should be. Your husband will probably settle for a smaller emergency fund if he realizes he’ll get a garage sooner by doing that.

Having twenty thousand dollars(!) sitting in a bank earning monthly interest after having recently owed over forty thousand dollars plus monthly interest is an awesome feeling to have. I have things that keep me up at night, but money isn’t one of them. Like I said at the beginning, it turns what would be a major freakout level problem into a minor inconvenience.

It turns a hurricane into just another storm.

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