Do you have an emergency fund?
The other day an interesting topic came up in a discussion for my post on signs when you should quit your job. Loyal reader Trevor brought up the point of saving 6-12 months worth of living expenses before pursuing any business ventures.
Then another loyal follower of Studenomics, Tom, asked about what someone should do if they don’t have 6 months worth of living expenses saved up. This brought up an interesting question for me; how much money should a new graduate put towards an emergency fund?
What’s my take on emergency funds for college graduates?
To be perfectly honest I don’t have an answer to this question. I have been reading many personal finance blogs that constantly stress the importance of an emergency fund and various investment vehicles for these funds. The only problem is that me and many of the great readers of Studenomics are 20 somethings that are no where close to having a family of our own.
Most emergency funds state that you need at least 3 months worth of livings expenses for your whole family. Jeff Rose states that if you have a sales related job you should have 12 months working of living expenses in an emergency fund.
Is there an answer to emergency funds in your 20s?
So this brings us back to the original question that I still can’t answer; how much money should a new graduate have in an emergency fund? Yes I realize that I have not discussed the whole emergency fund at all on this blog so you should expect a few quality posts on emergency funds in the coming weeks.
Today I’ll provide you with key points so that YOU may determine how much money belongs in your emergency fund:
If you plan on working the same job for many years to come then maybe you should focus on slowly building your emergency fund. If you are someone that likes to take chances with their career or if you plan on pursuing new business ventures in the near future then you should definitely consider having a decent sized emergency fund.
How quickly can you bounce back from a failure? If you are the type of person that will take one giant chance, fail, and then sulk for the next year then you definitely need 12 months worth of living expenses saved up. If you have the ability to turn an obstacle into an opportunity or to bounce back from a failure immediately then maybe building an emergency fund shouldn’t be your main priority.
This is arguably the most important point to consider when working on your emergency fund. How safe is your job? During a booming economy you could be working in finance making a fortune and laughing at the thought of an emergency fund. During a recession we must all consider the importance of an emergency fund, no matter how lucrative your current position may be.
Some industries are recession proof while others collapse as soon as there is the slightest economic downturn. For the sake of your future, take a realistic look at your current position and ask yourself this question: will I still be employed in a year from now? If you feel the answer is no then I suggest becoming very aggressive with your emergency fund. Quitting your job is not an easy thing to do.
Studenomics is not meant to be a blog where I tell you what to do or how to do things. We are all here to help each other and I have a lot to learn from the readers. In this article I simply provided a few key points for a new graduate to consider when building an emergency fund. Now it’s time to turn it over to the readers, how much is in your emergency fund?