Dave Ramsey and YNAB collide
Can anyone shed light on how I need to prioritize? I've been a Dave Ramsey follower and YNABer for many years now. For those Ramsey people, I have Baby Step #1 holding steady ($1k Emergency Fund) for many years now but I haven't been able to move forward Baby Step #2 (3 months expenses) because I have been working to get my True Expenses under control so that the year is planned for and not reacted to.
We are saving money for a kitchen remodel that will be happening in the next month or two so any extra money has been going towards that project, so that has diverted a lot of my True Expenses savings. When I get the kitchen project done, do I need to wait until I have all of my year planned for in True Expenses before I start allocating money to build up the 3-months expenses for Baby Step #2?
I listened to a ton of DR when I was first starting YNAB and I basically followed his baby steps. True Expenses isn't part of Ramsey's plan but it would fit into BS2. I'd say continue to follow YNAB Rule 2 and if you can, put a little into your 3 month expenses fund as well. It doesn't have to be one or the other as they go hand in hand. I eventually turned my 1k EF into 6 months of salary. If you don't have enough for an upcoming true expense, you're going to have to pull it from your EF anyway or a further off TE. The phrase "six of one, half a dozen of the other" comes to mind.
It's your priorities at work here. DR can tell you what he would do, I can tell you what I would do, but in the end, it's your call. You're the only one who knows how stable your employment is or how long it might take to get another comparable (or better) job if needed, or whether your air conditioner makes an awful screech the first 5 minutes after you turn it on.
I would definitely prioritize the "hard" True Expenses first (e.g., Amazon prime fee, semi-annual car insurance, etc.). If you know about a future bill for which you are not making contributions now... that's what non-YNABbers use their "emergency" fund for. In my view, that's a flat out mistake. (Again, just relating a viewpoint; I have no idea how you're setup in this area.)
As for the "soft" or less-known True Expenses (e.g., auto repair, auto deductible, major appliance replacement, computer repair/replacement, etc.), that's kind of the point of the EF. The DR approach is to roll the dice that your EF will handle whatever happens, while you throw money at debt. Makes sense, since the interest is kind of the "devil you know".
Once consumer debt is gone, most people will break up and expand their EF to the likely "emergency-like" things previously mentioned as well as the big-daddy cat -- Income Replacement. This gives you insight into your ability to handle near-simultaneous events. Murphy doesn't care that someone just T-boned your car when he decides you need a new water heater.
do I need to wait until I have all of my year planned for in True Expenses before I start allocating money to build up the 3-months expenses for Baby Step #2?
Aside from the known date/amount TEs, all the rest, including Income Replacement (a.k.a., "3-months expenses / BS2) are a matter of risk. How likely is it and how hard will it hit you? Likely and hits hard == extreme risk -- you better have a mitigation plan in place ASAP. If your water heater is 10 years old, the likelihood of it giving out is high and that's not something you're going to live without. Assume your job is extremely stable. Of those two, I'd probably funnel money into the major appliance repair (or home maintenance or whatever you've called that sort of stuff) before Income Replacement. You're going to have to juggle this division among your various categories.
In my case, I felt my employment was pretty secure, so I chose to grow the IR category by 1 month a year. This also meant I still had money for higher risk things.
The budgeting software that Dave Ramsey recommends is Everydollar. Everydollar has a feature for having sinking funds for True Expenses. Dave expects you to plan for True Expenses even as you are going along getting out of debt. He even says things like "Car insurance is NOT an emergency! If you have an older car, car repairs are not an emergency. They are something you should be planning for. You should be planning for car insurance because you know that is an expense you will have to pay. The same goes for car repairs with an older car" He very much expects you to plan for true expenses while paying off your debt.
need to have the TE fully funded, fully running
With other things you said before, I'm not quite sure how you are funding your TEs. Do you want the whole amount you will need for the year in your budget before funding the 3-6 months of Baby Step #3? Or is your issue is you can't have a steady monthly budget amount for all your TEs yet every month of the year?
I think most people who replied are like Gadget Girl: TEs are an ongoing budget item and need a steady constant monthly amount. I don't think anyone who replies funds their TEs for a whole year at once. It's constant funding and spending.