Job seekers stand in line to meet with prospective employers at a career fair in New York City in this October 2012 file photo. If unemployment strikes, it lasts an average of 40 weeks, which is why an emergency fund equal to a year's salary (after taxes) is advisable. (Mike Segar/Reuters/File)
Contrary to what you might think, addressing your emergency fund is a more immediate concern than paying off debt (which is why it?s first on this list). An emergency fund serves as insurance against future financial difficulties by ensuring that unexpected difficulties like job loss won?t lead to financial disaster.
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No one wants to incur significant credit score damage or find creditors ranging from the family doctor to the electric company calling in search of their cash, so the first step in creating the new financial you is to begin contributing a portion of your take-home pay to a designated account each month. The goal is to amass about a year?s salary (after taxes) in this rainy-day fund so you can withstand a prolonged job search, if need be.
Why a year's worth of emergency money? The average unemployed person is out of work for 40 weeks, according to the most recent data from the Bureau of Labor Statistics.
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