In case you haven’t heard companies are slashing jobs at record numbers.  What will you do if your employer let you go without any kind of severance?  How would you survive?  Collecting unemployment might be a viable option, but are you sure you qualify?  (Read How to Collect Unemployment).

To prepare for times like these, every wage-earning person should have an emergency fund.   Consider your emergency fund as your backup plan for losing your job and being unable to collect unemployment.  A good emergency fund will contain at least three to six months of living expenses.  More is always better. 

Putting your emergency fund into an interest bearing savings account is a good idea.  However, it’s not a good idea to put your fund into any kind of account that has early withdrawal penalties.  (This means you shouldn’t think of your retirement savings as an emergency fund).

Credit cards and loans don’t make good emergency funds because that money must be repaid.  Financial trouble has a funny way of compounding and using debt to bridge a job loss will only make matters worse.

Take advantage of being employed and start putting money aside for a rainy day.  Remember, the ideal emergency fund will cover your living costs for at least three months.

A good read: How to prepare for a layoff