Unemployment

I recently brought up the question of whether we now need 8-12 months expenses saved rather than the old three to six months that used to be convention. I think in these economic times, where we are seeing unemployment hitting rates we haven’t seen in decades, that three to six months isn’t enough.

I received a lot of great comments on the article.  Many agreed that 8-12 months  expense savings is a good idea while others agreed that we need to re-evaluate how much we have saved but that 8-12 may be reaching.  Some questioned if it was even possible or practical.

A big question that comes up: How does a person save up 8-12 months of expenses?!?

Let me first say I know it’s tough saving even 3-6 months of expenses.  I wouldn’t be surprised if most families don’t have even 3 months expenses saved no less 8-12 (please prove me wrong!).  But with unemployment rising it’s something we all have to think about.

I think it can be done!

The sooner you can put together your expense savings the better.  But that doesn’t mean you have to do it right this minute.  Don’t stress out completely because you can’t cover a year’s worth of expenses right now.  But at the same time look at what you do have socked away and ask yourself if you could save more, even if it’s only a little bit.  Work your way up.  Do you have three months expenses saved up?  No?  Set that as your goal.  If you do have three months work your way to six months expenses.  Squirrel away until you reach your goal.  If you never need it then great but should you have to use it you will be happy for everything you could save.

But does it have to be 8-12 months saved?

You need to look at your own situation.  Here are some questions to ask yourself:

• What will happen if I lose my job?
• Realistically how long would it take to find a new job at the same salary?
• How much more will I need if I have to take a pay-cut?
• How long can I support myself while looking for work?
• How has my industry been affected by the economy?  Are whole companies going out of business or is it growing?
• How is your company doing?  Are they hiring or letting people go?
• What is the likelihood that I could get laid off (tough one to answer but be honest with this one.  Most people think a company can’t do without them but in most cases they are probably wrong).
• What savings do I already have?
• What would I get in unemployment benefits?
• Are there any other money sources you could tap if needed (Stocks, bonds)?
• Would or could you work part-time until you find full-time work?

And here are some items to think about when figuring out your expenses:

• What must get paid every month (mortgage, car payment, electricity, phone bill, water)?
• What do you spend on food every month?
• What will health care cost?
• What costs will there be in finding a new job (transportation, resumes, dry cleaning, clothes, fax, phone calls).
• What other expenses will you have (car maintenance, home maintenance)?
• What do you actually spend every month?
• What can you cut back should you lose your job (cable, eating out, vacations, etc…)?
• How many mouths does your income support?

Be honest with yourself. You may find that you don’t need 8-12 expenses.  But you’ll be better served to save a bit more than a bit less.

What do you think?

photo credit: TheTruthAbout…