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A business owner's wife asks Dave Ramsey about skipping paying off debts to build an emergency fund for when they will have a dip in income. A sailor about to go on active duty asks about building an emergency fund.

Dear Dave,

My husband opened his own commercial painting business in May. He knows he will have about three months in the year where he’s making little to no income. We’ve gotten $1,000 set aside for our Baby Step 1 beginner’s emergency fund, but because of that down period, he would like to skip paying off all our debt except for the house, which is Baby Step 2, and move to Baby Step 3 and put an emergency fund aside. I can understand his thinking, but I wanted your thoughts on the idea.

— Melody

Dear Melody,

Baby Step 3 is not a fill-in-the-gap measure for income you already know won’t be there. Baby Step 3 is an emergency fund of 3-6 months of expenses, and the scenario he’s talking about is not an emergency. He knows it’s coming, so it is not an emergency.

I think he needs to rework his business model. This guy needs something to do during those three months, so he doesn’t drop off to no income. Also, if you’re going to set some money aside for a down time, that would not be Baby Step 3. It would be a line in the budget where you’re setting some money aside because you know a problem’s coming.

If something happens around the same time every year it becomes predictable, and it’s not an emergency. So, it’s not really a matter of the order of the Baby Steps. You budget for this down time, or even smarter, figure out a plan for his time during these months, based on his skill set, that will earn some money!

—Dave

Dear Dave,

I’m debt-free except for my home, and I’m about to start Baby Step 3 of your plan. I will be will back on active duty in the Navy soon, and they provide certain types of relief funds for its members depending on where you’re based and other factors. With this in mind, how should I approach Baby Step 3?

— Brad

Dear Brad,

For Baby Step 3, I tell folks to have 3-6 months of expenses set aside in an emergency fund. You have incredibly stable employment, so you would probably be OK on the three-month side of that equation. And you wouldn’t need quite as much emergency fund money as if you were a straight commission salesman.

However, my guess is you’ll still have emergencies that will be your responsibility to cover. Everyone needs an emergency fund, Brad. But in your situation, you’ll probably be OK with one that’s closer to three months of expenses rather than six months of expenses.

Thank you for your service to our country!

—Dave