The idea of the baby emergency fund has been around for a long time, but it has hit the mainstream thanks to Dave Ramsey. The reason $1,000 to $1,500 works so well as an emergency fund is (1) it can be saved quickly and (2) it covers most minor emergencies that come up. Obviously we'd all like to have much larger cash balances sitting on the sidelines when an emergency strikes, but a baby emergency fund is good enough to get you through most of life's trouble spots.
Covering the Small Stuff
Most of us will have auto insurance deductibles under the $1,500 threshold, most appliances cost less than this amount, and all but a few auto repairs will fit in this range. In short, most of the small stuff can be handled with a small emergency fund. Larger emergencies like a loss of income, major health expenses, and the like will be outside of the scope of this small amount of reserves, but fortunately these types of emergencies happen less often than their smaller cousins.
Finding the Money
The quickest ways to come up with the money for a baby emergency fund is by (1) selling some stuff, (2) cutting savings, or (3) cutting expenses. Sometimes the best thing to do is clean out your home, sell what you can, and donate the rest. You'll make a few dollars on what you can get rid of, get a tax deduction for what doesn't sell, and have a less cluttered home.
If you're not into garage sales or ebay, cut your savings or one or more expenses to free up some cash to fund your baby emergency fund. Sometimes it's as simple as reducing your savings or expenses for a short time until you have your $1,500. If you're cutting expenses, take a good look at what you're spending and start cutting where it hurts the least. Most of us will find a hundred dollars or more each month in pure wasted expenses so you probably won't need to look very far.
Stashing the Cash
Once you have your money, it's your call on how you'd like to stash your cash. Some of the more creative ideas involve making origami out of 10 or 15 hundred dollar bills or framing the Benjamins with a 'break glass in case of emergency' sign, but you can also keep it under the mattress or in a savings account. The key to stashing your emergency fund is to put it someplace where you won't be tempted to spend it on something that isn't of an 'urgent and important' nature.
*GASP* Emergencies Happen
Once you have your money set aside, an emergency will happen. When it does, take it in stride and understand that since you have a small amount of money in reserve, you may have to drain and refill this fund several times until you can get in better shape financially. You should not get discouraged just because you have to keep dipping into your emergency fund from time to time. After all, this is the purpose of an emergency fund, right?
Though a large, healthy, maybe even fat, emergency fund is always preferred to a small, baby one, the bottom line is that having at least this $1,000 to $1,500 will keep you from being crippled by the smaller emergencies in life. A baby emergency fund is a starting point in securing your financial life and is an absolute necessity. The alternatives when this cash isn't available aren't pretty, so sell some stuff, reduce savings, or cut expenses until you have your baby e-fund.