Imagine turning your passion for cooking into a full-time career — or suddenly getting laid off from your startup.
Neither scenario is far-fetched: It’s not always possible to predict where you’ll be a year — or five years — from now. Your company could go kaput, or you could transition into an entirely new field.
That’s why a fully funded stash of emergency money should be one of your financial goals even when things seem to be going well at work. In fact, getting a bonus or a raise is a great opportunity to invest even more into your fund.
Emergency funds can cover more than medical bills and auto repairs. Having money set aside for surprises, such as losing your job, will help you navigate the ebbs and flows of your career with ease.
If you do get laid off or change careers, an emergency fund could help you avoid asking friends and family members for help, settling for a new job you don’t like, giving up your apartment or running up the balance on your credit card. Everyone can use a financial buffer.
There are lots of ways to build your emergency fund, including saving your tax refund or enrolling in automatic transfers from your checking account every time you receive a paycheck. The amount you should have in the fund depends on your financial situation, but a good estimate is three to six months’ worth of living expenses. (Use Nerdwallet’s emergency fund calculator to see how much you should save.)