Dave Ramsey's Take On Emergency Funds

For the past week or so I have been writing about emergency funds and how important they are. If you have money stashed away in a money market or savings account it will give you peace of mind.

Financial guide Dave Ramsey recommends saving $1,000 really fast for a starter emergency fund. He asks you to take steps such as, selling things, working part time, or trimming expenses from your spending plan to reach that goal.

After you save the $1,000 he then suggests that you start paying down your debt. Everything is to be paid off except for the mortgage if you have one. Once your debts are paid off, he wants you to go back to building your emergency fund up; to 3 to 6 months of living expenses. This step alone could take years to accomplish. The total amount saved should be anywhere from under $10,000 to over $20,000.

We are trying to set up an emergency fund in our household.

But...

At one time we did have a money market account earmarked for emergencies. That fund was erased when we bought a used car with cash. We really didn't need the car. That's mistake number one. I avoided debt...but used up our savings in the process.

Recently I replaced a 9 year old car with a new one. I took out a loan to do it. According to Dave Ramsey that was mistake number two. I really don't feel comfortable leaving only $1,000 in our money market to follow Dave Ramsey's advice. If I do that, in time we'll have a paid off car and no emergency fund aside from the $1,000.

My plan now is to put more money in the emergency fund and pay a little extra each month on the car loan.

I know Dave Ramsey wouldn't approve, but I feel this is the best choice to make at this time. What would you do? Pay off the car faster, or build up your emergency fund. I'm curious to know.