This is a guest post by Paul Williams from Crackerjack Greenback. You can visit his site and follow along his journey as he goes from being laid off to finding his next job. After reading, consider subscribing to Paul’s RSS Feed.
A couple of days ago, I was laid off.
Am I concerned? Yes.
Am I worried? Only slightly.
Am I panicking? Not at all!
How can I be so calm at a time like this? Because I have six months of my expenses saved up in an emergency fund at ING Direct. While it hasn’t been as effective as prayer, keeping this fact in mind has kept me free from stress and panic and allowed me to focus on what I can control. I can’t go back in time and get un-laid off.
But I can make sure I’m focused on what I need to do to find my next job.
Without an emergency fund, I would be in a very dangerous situation right now. First, I would have to figure out how I’m going to pay my bills once I run out of cash in my checking account or wallet. Second, I’d have to take the first job I could get just to keep up. (And once you start any old job, it may be difficult to continue searching for a higher paying job in your field.) Finally, it would be much harder to stay calm and relaxed even though I know God is in control.
Even though I’ll be getting unemployment compensation, my emergency fund is still an important piece of my financial situation. The emergency fund can more than cover my expenses until the unemployment benefits start. And those unemployment benefits won’t last forever. If I were to exhaust my unemployment benefits, I’d still have my emergency fund to carry me for at least another six months.
I can live on my unemployment benefits because I’ve kept my expenses so low. Frugality is powerful in good times, but absolutely necessary in bad times. Being frugal while you’re gainfully employed allows you to easily make the transition to living on less if you lose your job.
But what if you can’t get your expenses low enough so that you can live on just your unemployment benefits? In that case, you’ll be glad you have an emergency fund! Those extra savings will keep you from going into debt at one of the most vulnerable times in your life. If you don’t think you could live on unemployment benefits alone, you better start or increase your emergency fund now!
All that’s fine if you’re actually eligible for unemployment compensation. But there are tons of people who aren’t covered at all.
Do you fall into any of these categories?
worker for a church or another religious organization
trainee at a public or non-profit organization
work-study jobholder at a college or university
consultant who works independently (independent contractors)
real estate broker or insurance agent who works on commission only
employee of a foreign government
elected official or certain other government employees
certain other excluded jobs
If so, you better have a super-sized emergency fund! Unemployment compensation helps a lot when you lose your job, but if you don’t qualify you’re out of luck.
If you’re not covered, I recommend you build up your emergency fund to 6-12 months worth of your living expenses to protect yourself against job loss and other unplanned events. I know NCN has a ton of great articles about emergency funds, all of which you can find here.
I hope this article helps you see why an emergency fund is so vital and provides you with one more example of a real-life situation where you’d need one. If you don’t have an emergency fund at all, I strongly encourage you to start one now even if you can only save $10 a month.
If you already have one, take a little time to determine if it’s large enough for your needs and figure out how you can increase it if necessary. And for good measure, let’s all pray that no one else gets laid off. It ain’t fun!
I’d like to thank NCN for giving me the opportunity to post as a guest author on his blog. When he heard I was laid off, he offered me the chance to guest post as a way to encourage me and help me out. NCN rocks! I strongly encourage you to support him and his blogs.
I want to thank Paul for sharing his story and emphasizing the importance of the emergency fund. Like Paul, I keep my emergency fund with ING Direct, and if you are ready to get started, you can open an account with them and get a $25 bonus! I hope you’ll visit Paul’s site, Crackerjack Greenback, and let him know that you enjoyed this post. I know that I’m going to be following Paul’s story and cheering him on.