Baby Step 3

Hi and welcome back to my series on the Dave Ramsey Baby Steps.

You can find the other posts in the series here:

Baby Step 0

Baby Step 1

Baby Step 2

I’ll reiterate that you NEED to have written a budget before you start the Baby Steps (see how to do that here and you NEED to follow the Baby Steps in order.

Today I’m writing about Baby Step 3. Now, in my own opinion, this is the most difficult Baby Step. I feel like when we are in BS0, we have just started and are really motivated, and in BS2 we are on a mission to pay off all of our debt and will see an end result (more money for us instead of going to creditors). But BS3 kind of leaves me feeling a little flat. Having cash in the bank for no reason other than ‘just in case’ isn’t something I’m familiar with.

Plus, I would also say that this is the first of the Baby Steps (BS) to differ slightly from the American system.

What is Baby Step 3?

Baby Step 3 is a CONTINUATION of BS1. So, in BS1 we saved a £1k emergency fund and in BS3 we add to that until we have 3-6 months’ worth of expenses. That’s why BS1 is called the Emergency Fund, and BS3 is called the Fully Funded Emergency Fund (FFEF), because it’s a continuation of, not as well as.

To calculate how much you’ll need for BS3 you look at your budget and see what you would need to live on per month if you had no income at all.

This is where things differ in the UK, as most of us would be fortunate enough to receive some Government Assistance in the form of Benefits. Assistance such as Universal Credits, Tax Credits, Child Benefit, Council Tax Support etc.

Whether you take that into account when working out what your 3-6 months of expenses will be, or not, that is entirely up to you.

Also, when doing your calculation, remember that this is an EMERGENCY budget, in case of a job loss, or death, or any other emergency. We don’t include Sinking Funds, any eating out, any pocket money, gym memberships or luxuries. Its just what we would need each month to keep a roof over our heads and the bills all paid.

Why do we need BS3?

Although I am finding BS3 incredibly boring, I do see the value in it. In fact, this is probably (in my opinion) the most important Baby Step, as it’s the one that will stop us from getting into debt once we become Debt Free.

It is our buffer from big emergencies like job losses and can be the difference between putting food on our table or not. It isn’t for dipping into at Christmas time, or if our car breaks down, we cover that with Sinking Funds (here is info on Sinking Funds if you would like to read it This Baby Step is for EMERGENCIES ONLY.

Without this Baby Step, when we have an emergency, we will end up getting back into debt. That is why this Baby Step is so crucial.

I hope that explains a little about Baby Step 3, and I’ll be back in a few days with the next in my Baby Step series, Baby Step 3B.


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