Emergency Funds for Losing Your Job

March 25, 2009

Your emergency fund is your best friend if you lose your job in this bad economy.  We’ve had an emergency fund in an online savings account ever since we joined the work force and last week was the first time I thought I might have to use it.

Losing my Job?

One afternoon last week a co-worker mentioned that the product I was hired to work on was being phased out.  I stopped by my boss’s desk to find out whether I’d still have a job but he was gone for the day so I spent the evening thinking about being laid off and what it would mean for my family.

My initial reaction was a mild case of panic, we’re having a baby pretty soon, what would I do without a paycheck and health insurance!  As I drove home I started walking through the details of how to prepare for a layoff financially in my head and the closer I got to home, the better I felt.

Emergency Fund

We have over six months of living expenses in online savings accounts, some with ING Direct and some with FNBO Direct. Our emergency fund is the single biggest reason I remained so calm when faced with the possibility of losing my job.

We actually have more than 6 months of worth of expenses saved up but Murphy’s Law makes me worry our expenses might actually increase for unforseen reasons if I was unemployed. So I figure I’d have about 6 months of no income before we ran out of money.

Health Insurance

I would qualify for COBRA (Consolidated Omnibus Budget Reconciliation Act), which would allow me to buy insurance coverage from my former company for 18 months if I was let go.  Of course I’d have to pay the full premiums myself but with a baby on the way it would certainly be worth the money.

Job Market

I spent several months last fall networking and job searching so my paper and online resume are up to date.  I’m fortunate to be in a good career for a recession, there always seems to be demand for computer programmers.  Even if I couldn’t find full time work I could get a freelance job here and there to help us get by.

Job Security

I went into work the next morning after thinking about losing my job all night and had a meeting with my manager and his boss. It turns out everything should be okay, they are phasing out my product but they have a lot more work to do in other areas.  It may actually end up being a good change, I’ll be learning a whole new programming language and set of technologies, which will make it easier for me to find a job in the future if I ever do get laid off.

Start an Emergency Fund

Even though everything turned out okay (for now), I’ve never been more glad to have an emergency fund than I was that night.  With the security net of 6 months living expenses, the possibility of losing my job seemed a managable crisis.  So, if you don’t have an emergency fund, I’d highly recommend starting one this week.  You may not have much to contribute but start putting some money away now and over time it will add up.

You can open a separate emergency fund account online tonight, with a online bank like FNBO Direct.  It’s easy to do, you can create and fund your account without having to leave your house.  Then setup direct deposit and start putting away some money every pay period.  You won’t regret it : )

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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11 Responses to Emergency Funds for Losing Your Job

  • Sherin

    This is a right article. I have just commented to an another famous money blog about the requirement of emergency fund at this volatile economy time. I found you are with right ratio of 6 months and ya of course, that is the amount a person required to keep in a separate account.

    A well network with friends and other employers will do better if any possibility of job lose. One should consider the requirement of resizing monthly budgets to identify miscellaneous or unwanted expenses to avoid to collect maximum money to meet any consequences.

    Really a sound article. Appreciated.

    Sherin
    The Money Maniac

  • James

    Thanks for writing a thorough article about personal finance management. I learnt something new and hope to test drive your ideas soon. Awesome article!!

  • BobV

    Great post….. I think an emergency fund is so tough for people to grasp the importance of. When I teach Financial Peace Univ., even getting people to get the idea of that first $1000 seems incredibly difficult. It usually means sacrifices that people just aren’t willing to make.

  • Nate @ Debt-free Scholar

    I agree, emergency funds are so important! Even though I hardly make any money right now, I put a little into my emergency fund.

    Thanks,
    Nate

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