How financial preparation can lessen your anxiety when getting laid-off, and give you more choices and freedom to find your next path.
Last year, I wrote about job loss, specifically the loss of a paycheck. I was tempted to call the post “you will be fired”, but I thought that was a tad too dramatic.
And I was actually writing from my perspective, even if it wasn’t obvious.
Nothing ended up happening last year, but recently the same forces of upheaval that led to the last potential layoffs built another wave of uncertainty.
And this time the wave got me. Earlier this month, I was laid off.
But this isn’t meant to be about my job or the company or anything like that. I’m here to talk about preparation. The kind of preparation that led me to be sitting here, without full-time employment, and, if not without anxiety, at least on solid footing. I’ve got a plan.
And it just so happens that it’s the plan that I’ve been talking about here for years.
Table of Contents
Emergencies happen. You may not know when, but you can know what they look like.
Not all emergencies need to be catastrophic or land you in the hospital. They just may involve a lot of money that you weren’t expecting to spend.
I recommend everyone have six months of living expenses in savings. Living expenses means both Bills and Expenses (here’s a glossary). It means all your outgoing money. Fox six months.
People often say “three to six months”. So why not just three months?
Because of how it feels.
How long is it going to take you to get a new job? One month? Two months? (For reference, both my last jobs took on the order of six months to go through.)
But even if it takes you two months, how would you feel at the two month mark, knowing that you had only one month of savings left?
Now contrast that with this: how would you feel at the two month mark, knowing that you had four months of savings left?
How much relief can you get from three extra months of cushion? A lot.
How to feel less anxious
Losing a job is a very stressful experience. And that’s true whether or not you have another plan lined up.
And your emergency fund is one of the most powerful anxiety-reducing tools you can create for yourself.
I’ve got at least six months in the bank. (Possibly more, depending on how much I’m able to cut back, lifestyle-wise. Expenses aren’t fixed, after all.)
I’ve been looking at my numbers and doing the math ever since this whole thing went down. And, not counting the support from family and friends, for which I am so grateful, it has been the biggest stress relief process for me.
It tells me: I’ve got time. I’m going to be okay.
If you’ve got people you can rely on financially, that’s great. But not everyone has that.
But anyone can build up an emergency fund.
How to build an emergency fund
Your emergency fund is likely to be five digits. $10,000. $20,000. $50,000, maybe more. It depends on your lifestyle and whether you share finances with anyone.
If you know your Bills and average Expenses for a given month, then you sum those and multiply by six.
Have $2,500 in Bills and $1,500 in expenses? Your emergency fund should be around $24,000. ($4,000 times six, get it?)
I came up with some rough estimates of emergency funds for people based on income but you should really do your own work.
So how do you build that much? Slowly but decidedly.
$500 a month will get you there in four years, if you start from scratch.
Don’t have that kind of money lying around? Well, you would if you paid off all your debts, and didn’t have a car payment.
Should you wait to build your emergency fund until you’ve paid off all your debts though? That’s a tough call. On one hand, doing one thing at a time will help you be more focused and achieve greater results. On the other hand, do you really want to wait years to have a fully-funded emergency fund?
(Either way, you can stop using your credit cards now. That won’t help you here.)
Getting an emergency fund together is not an easy task. And you might even be temped to put that money to different use, say in a retirement account.
Don’t. You don’t want to get crafty. You need liquid funds that you can use without any penalties. Use an online savings account. Put it in a bank or credit union.
I’ve had a fully-funded emergency fund for a number of years now. As my expenses have grown (as in, when I bought my home), I added more to it.
I’ve never had to use it in any kind of sustained way. Until now.
And I can’t tell you how relieved I am that I have it.
I don’t know how long I’ll have to dip into my emergency fund. Maybe one month, maybe four. I certainly doubt that I’ll be out of work the whole six months.
But I feel like I’ve been preparing my whole adult life for this moment. And I’m very prepared.
Do I want to spend all of my emergency fund? Of course not. But I’m ready to, if need be.
I’m fortunate that I don’t have anyone relying on me for my income, as I’m sure that would have made my situation more stressful, but not more complex: if you need more money to take care of others, you just build a bigger emergency fund.
I wasn’t particularly looking forward to being laid off, but I have a lot of thoughts on where I’m going to go with this next phase of life. But before I make any sudden moves, I’m going to spend a little bit of time preparing for the next adventure. When I move forward, I will be ready.
Think this won’t ever be you? Don’t count on it. Get ready. Start your plan today. If you’re confused and overwhelmed, I don’t blame you. I can help.