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Ask Dave: Rainy day fund, no debt equals peace of mind

By By Dave Ramsey
May 11, 2013 at 12:11 a.m.


Dear Dave: I'm following your plan, and currently, I have $14,000 in my emergency fund. What are essentials for three to six months of expenses? - Brian

Dear Brian: Basically, you should ask yourself this question: What would it take to operate my household for a month? There are several different things that could be classified as "essentials," but if you take those things and multiply the number by three, four, five or six, you'll see how much money you need to have a fully loaded emergency fund of three to six months of expenses. This is Baby Step 3 in my plan.

Some people get really technical about exactly how many months of expenses they need to save in this range. And that's OK. You can take a little time to evaluate things before moving on to Baby Step 4, which is investing 15 percent of your household income into Roth IRAs and other pre-tax retirement plans.

Believe me, it's a great feeling to have a big pile of cash sitting there just for a rainy day. You don't want to go nuts and make it so big that you sacrifice retirement or other important aspects of your life, but after a point, you shouldn't be too concerned whether you have three months or six months of expenses - or somewhere in between - saved just for emergencies.

Having a nice emergency fund along with no debt creates a wonderful sense of financial peace.

Dear Dave: If a wife takes out a credit card in her husband's name without his knowledge and they get divorced, can the husband claim identity theft? - Nancy

Dear Nancy: Absolutely! Unless they have power of attorney, anytime someone opens an account in a name other than their own, they have stolen an identity. Being married to someone doesn't give you the right to sign their name to a document.

I knew a guy in the real estate business years ago who was doing a lot of property deals under his own name. Occasionally, the title company would require his wife's signature, and he would sign her name on the papers himself.

Sometimes he signed her name after calling her up and explaining what was happening, and she was OK with the situation. Then, he signed some papers she didn't know about, and it came back to bite him. He was charged with criminal fraud.

You cannot legally sign your spouse's name without first having power of attorney privileges. If you do, it's called identity theft. It's a crime anytime you lie to get money.

For financial help, visit daveramsey.com.

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