Before I give you my top five reasons why I think a young person should have an Emergency / Rainy Day fund of 3-6 months of your expenses in a liquid savings account, let me make a big distinction between what I mean when I say Rainy Day and what others may say. When I say Rainy Day fund it's not what it's rainy outside and you want to spend some money indulgently on the internet or elsewhere. It is, however, for the day you lose your job - period. You should have insurance for health issues and car insurance for a fender bender. This is only for loosing your source of income and holding you over for 3-6 months until you find another job.
- Eases your mind
- Avoid high rate short term credit
- Not have to settle as much on new employment opportunities
- Yearly interest on amount in a high yield savings account (3% sounds better right now than -30% doesn't it?)
- Long term vacation options between jobs becomes a reality
Most of the people who are looking at this are in their twenties or early thirties. If you have children or truly dependent dependents, 6 months is the way to go, not 3. If it's just you (and maybe a cat) then 3 months should be enough. Realize, however, that no matter how much you're going to make later on (unless you're making 7 figures plus) it won't feel easier to save money. No matter how much you made yesterday, if you lose your job today, you're going to feel the same way. Save 6 months of your expenses and be financially responsible - your mom isn't going to want to have you move back in and she's not going to want to hear why you lost your job because your boss was a tool (and if you work for me, there is no way that your mom is going to believe I'm a tool!)
