What is the third Baby Step in Dave Ramsey's financial plan?

The third Baby Step in Dave Ramsey's financial plan is focused on establishing a fully funded emergency fund, which should range between 3 to 6 months of living expenses. This step is crucial because it provides a safety net for unforeseen circumstances such as job loss, medical emergencies, or significant home repairs. Having this emergency fund means that individuals will not have to rely on credit or loans when life throws unexpected financial challenges their way.

This step is built on the foundation of the previous two Baby Steps, which involve saving a small emergency fund and paying off all debt (except for the house). Once those steps are complete, focusing on a more substantial emergency fund secures one's financial position and allows for greater peace of mind in managing finances. This level of preparedness is essential for maintaining long-term financial stability and avoiding the pitfalls of debt accumulation in case of emergencies.