In Move #3 you started building a safety net. It may seemed small, but I suspect it served its purpose as you navigated through your consumer debt. Now, in Move #6, I'd like you to increase that smaller savings goals into what I call the 6x Emergency Fund.
Life happens. At this stage in your financial progress, I bet you know that by now. Medical bills, car trouble, and maybe even job loss has shown you the need for liquid cash (easily accessible). You need to have a fund that can help you make it through rough times and keep you from going into debt. You don't want to go back to Move #4, do you? This is a straight forward Move that does take sometime but since you are on the downhill side of this mountain, it shouldn't be nearly as intense as getting through your consumer debt.
I always recommend a six month emergency fund. This will give you enough time to find a new job, start a new business, or God forbid, allow your long-term disability to kick in. The question is, should you do six months of net income or six months of expenses? This is another part in our program where you decide. Let's look at the differences first.
Six Months of Net Income. This is obviously the larger of the two and what you will be doing here is multiplying your net monthly income (household) by six. If you make $3,000 net per month, your goal would be $18,000. You should already have some money in savings from Move #3, so you subtract that from your total and that is your new goal. From there, you divide your monthly Flex Cash into your goal and that will tell you how many months it will take to fund Move #6.
Six Months of Expenses. When you set your budget up, you may have differentiated between fixed expenses and variable expenses. If you are just targeting six months of expenses, then all of the wants in your budget can simply go away. Instead of $3,000 per month in our example above, it may only be $2,000. Your new goal, then, would be $12,000 - your Move #3 total. Again, divide that by your Flex Cash total and you will have how many months it should take you to finish.
The smaller fund is for people who feel pretttt secure with their job and can cut lifestyle easily if needed. The larger fund is for people who want more security in the case of an event or they may have a variable income, etc. No matter what you do, though, it's important that you have a sizable emergency fund for unforseeable circumstances. This will protect you from 95% of life.
Once you've completed your 6x Emergency Fund, continue you on Move #7. As a last piece of advice, this may take you two years to fund. Perseverance is important. Remember where you started and always keep in mind where you are going. Don't lose focus of the long-term goals.