Why an Emergency Fund Should Be Part of Your Career Plan
As you progress in your career, finding a new job can become harder and harder. One of the big reasons for this has to do with salary. When you first start working, you are generally open to just about any job and will happily take a tiny paycheck. However, as you rise through the ranks of your industry, your salary requirements will evolve.
One challenging situation that many job seekers face is when they want to leave a job but are financially unable to. In general, one of two scenarios is preventing the job seeker from leaving: They are either living right up to their means and spending every dollar they make each month, or they do not have a safety net in the form of an emergency fund.
A job seeker with no emergency fund who needs every dollar to pay their basic bills feels trapped. It’s even worse if the job seeker is being treated poorly at work: They can’t financially afford to leave, but they can’t emotionally afford to stay.
Don’t Get Trapped: Start an Emergency Fund
To protect yourself from getting trapped in a scenario like the one described above, do two things.
First, scale back your fixed expenses if possible. Then, take the extra money you’re saving each month and put it into a savings account. That account will serve as your emergency fund. Ideally, your emergency fund should carry you through six months of living expenses. I recommend keeping your emergency fund in a savings account because it will be protected from market fluctuations that way.
Creating an emergency fund takes time and dedication. It’s not something you can do overnight, and it’s not easy. But if you feel stuck in a bad work situation, think about how much differently you might feel if you knew you had six months of living expenses in an account – just in case.
The benefits of an emergency fund can’t be overstressed. Having a backup plan gives you room to breathe and the power to walk away from jobs (if necessary!) without having to worry about how you’ll pay rent.
Along these same lines, when you land a new job that pays more, don’t immediately jump to increase your fixed monthly expenses. A new house or car may be tempting, but give yourself a chance to decide that you really like your new job first – and that the company really likes you. The last thing you want is to lose that job and be stuck with living expenses that reflect your lost income.
The bottom line is this. Things can (and will) go wrong at work. You may get a bad boss. Your company may go through layoffs. But if you manage your finances carefully, you’ll give yourself an out. And, in the end, you’ll create both breathing room and professional freedom.
A version of this article originally appeared in the Memphis Daily News.
Angela Copeland is a career coach and CEO at her firm, Copeland Coaching.