Dear Dave: My wife and I are on Baby Step 3 of your plan, and we're about halfway to building our fully funded emergency fund. We don't like our current home very much, and we'd like to sell and move as soon as possible. We have a little over $30,000 equity in the place, so would selling the house be a viable option for funding Baby Step 3 ?
— Justin
Dear Justin: I wouldn't sell the house just to do Baby Step 3. That's usually a pretty easy Baby Step after you've gotten everything paid off except the house. As you know, a fully funded emergency fund means saving three to six months of expenses, so you shouldn't have to sell your home in order to accomplish that.
However, if you don't like the house anyway, and you're already planning on selling it, then yes, set some of the equity aside. I wouldn't put all of the equity into the next deal. I'd hold back my three to six months of expenses, so when you move into another house you're debt-free with a fully funded emergency fund sitting there.
Regardless, when you move I want you to have an emergency fund and be debt-free in addition to your down payment. That's what we're after.
