Manage Your Finances

What’s Your Financial Emergency Plan?

financial emergency plan

Do you have a financial emergency plan?  Many people have an emergency fund – but do you have a plan for how you’d handle your money in a financial emergency, like a sudden job loss, were to hit you?

This past Sunday, as I was making the mental transition from relaxing weekend to the start of a new work week, I whipped out my laptop to do a bit of work in preparation for some Monday morning meetings that I had.  I didn’t have much work to do and I was cruising along nicely when suddenly I was no longer able to access the files I was working on.

Then over the course of the next several minutes I gradually lost access to to all of my work accounts.  No email.  VPN access was terminated.  My Skype for Business was down.  My passwords were being rejected – none of my work credentials were working and I even lost access to email via my phone.  Restarting my PC caused me to get locked me out of my machine.

Uh oh – this can’t be good, I thought to myself.

I texted a coworker to see if he was having similar troubles; he wasn’t.  Was I suddenly locked out of work because I was going to lose my job in the morning?  Such a thing had been known to happen at my place of employment.  I wasn’t *too* worried but I have to admit that I had an uneasy feeling.

That uneasy feeling triggered an emotional response and I immediately started to circle my financial wagons. I needed to have a mental game plan ready for what my next steps would be should I get the pink slip the in the morning.

I was now in a defensive mode as I opened up my financial spreadsheet and budget and began to review my Financial Emergency Plan. If I was going to lose my job, here’s what I’d do.

My Financial Emergency Plan

Cash outflow (expenses)

  1. Cancel all recurring expenses
    •  Amazon Prime. Is that up for renewal soon?  If so, cancel it. (Save $100/yr)
    • Comcast – kill the TV package and downgrade the internet package. (Save ~$50/mo)
    • Netflix …. keep for now.  If finding a new job takes longer than expected, this expense will get cut.
    • Cell phones – downgrade to a cheaper rate plan. (Save ~$30/mo)
  2. Adjust our only two debt payments
    • Put the student loan into forbearance. (Save $115/mo)
    • Make the normal payment on the car loan. (We currently pay extra each month – save $100/mo)
      • If finding a new job takes longer than expected, we’ll look at selling the car and paying cash for a replacement.
  3. Adjust other recurring expenses
    • Shop around for lower rates on renters and auto insurance. (Save ~$20/mo)
    • Consider raising insurance deductibles to further lower this monthly expense.
  4. Other expenses
    • Groceries – only the essentials.  Hamburger, not steak.  Chicken, not salmon.  That sort of thing. (Save $50/mo)
    • Fast food – Sorry, Ty – no restaurants for you (but that should bring our monthly restaurant bill down quite a bit! – save ~$500/mo)
    • Sorry kiddos, gymnastics are temporarily on hold; no swimming lessons either (Save ~$150/mo)

And just like that, in a financial emergency, we could eliminate almost $1,000 per month from flowing out of our bank account.

That’s going to go a long way in helping us manage our finances if and when money gets tight.

Cash Inflow (income & assets)

  1. Severance pay
    • Based on what my previous co-workers have received when they’ve been let go, I think I’d get between 1-3 months of income; possibly more. I’d like to think that I could find a new job within that time frame, but you just never know. I’ve gone over 14 months without a job before. It’s not fun.
  2. Unemployment insurance
    • If I’m still unemployed when my severance runs out, unemployment insurance benefits and income would kick in. These benefits, while less valuable than a full time salary, still provide an income while you’re looking for full time work. These benefits typically last about 26 weeks, or 6.5 months.
  3.   Cash holdings
    • This is the first of our assets that we’ll dip into if/when severance and unemployment runs out. Severance pay and unemployment benefits would last me anywhere from 7 to 10 months. If necessary, I’d turn to our cash holdings (a.k.a. our emergency fund). I’d call 10 months of unemployment an emergency worth dipping into the cash for. This would last us another 3-5 months, depending on how much we’d tighten our belt.
  4. Individual stock
    • Once cash runs out, we’ll sell our individual stock to refill our cash holdings. This would buy another half year.
  5. IRA accounts
    • If I’m out of severance, unemployment, cash, and stock then I can turn to my IRA and begin to pull from that. I can access the money I deposited into my ROTH penalty free.  I’ve not focused heavily on my IRAs to this point, but there would be enough to cover us for another couple of months.
  6. 401(k)
    • My last line of defense would be tapping into my 401(k). I don’t think it would come to this, but it’s an option nonetheless. If I needed to dip into my 401(k) to survive, then that means I would have been unemployed for about two years. Ouch!

No Sacred Cows

At its core, our plan is really to just white-knuckle every penny we have.  Every cent we already have, and everything we get would be fiercely protected.  Every dollar spent would be tracked even better that we currently track.

Other options that I’ve not listed here would be selling some of our material possessions that have value.  Jewelry, guns, furniture, other collections – nothing would be untouchable if it came right down to it.   In fact, I’d probably start to sell things of value before I dipped into our IRA accounts.

Prepare for Unemployment

Nest eggs tend to disappear rather quickly when you are drawing them down, and not adding anything back in.

Between a severance package, unemployment insurance and cash holdings I feel like we’d be just fine for about a year (without really lowering our standard of living). If we really tightened our belts, we could squeeze another two months out of those first three options.

It my situation were to deteriorate to the point where I needed to consider selling our assets, then it’s probably time to start looking internally at myself and asking why I’m having a hard time getting a job.

  • Are my jobs skills no longer marketable?
  • Do I need to go back to school for training or a certification?
  • Are we in the wrong area for the work I’m qualified to do?
  • Would I have better luck by moving to a different city or state?

I’d like to think that I could have a new job lined up before my severance package ran out, but in reality finding a new job while your unemployed is a hard thing to do.

Prospective employers tend to look at you and wonder why you’re unemployed; they don’t assume the best. Employers are risk averse and don’t have much of an appetite for taking chances on a job candidate.

If a job came down to me and another candidate, and we were the were the same in every way except for our employment status, more often than not, the gainfully employed candidate will get the nod and the unemployed would remain unemployed.

Do you have a #financialemergencyplan? You should know exactly what you'll do if and when a #financialemergency hits your budget. #EmergencyFund #jobloss #fired #unemployed

Crisis Averted

I’m not sure what was wrong with my work credentials this past weekend, but Monday morning came and went and I’m still gainfully employed. All of my tools and credentials are working again. Whatever the problem was, it seems to have been temporary. But having that small scare has motivated me to reexamine my financial emergency plan and to prepare for unemployment.

I’ve also resolved to be better with my professional networking by reaching out to old colleagues. The time to build your network is when you don’t need it. A good book on this subject is called Never Eat Alone – take advantage of every opportunity you have to build and strengthen your professional network.

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You might have en emergency fund, but do you have a financial emergency plan?

By Ty Roberts

Ty Roberts is the founder of Camp FIRE Finance, and a husband and father of four living in the Seattle area. He's a fan of the 4% rule, 80s movies and music, dad jokes and cast iron cooking.

21 replies on “What’s Your Financial Emergency Plan?”

Ty – sorry for your induced “Stress Test” to your Emergency Plan, glad the glitches were just gremlins, and not a Corporate Conspiracy Theory preparing for your demise.

As one who’s been there (unemployed for a long stretch), your plan is solid and useful to us all. I’ve been fortunate in never losing a job (31+ years and counting!), but your post made me do a mental exercise of what I’d do in the worst case. I’ve always kept 3-6 months of liquid cash, but hadn’t worked through all of the details. Amazing that you can squeeze $1k by “little things”, suspect that’s true of all of us. Good post.

Your mind works a lot like mine when something goes wrong. I would probably go down that rabbit hole too. But is that all bad? Well in this case no. You sound very much like me and what I would do too. And I’ve had a long stretch of unemployment too. Not to get too “woe is me” either, but I do think it’s harder to find a job as a 40-something as I am vs when I was in my 20s or early 30s. So I would be very, very cautious and cut way back financially until smoother seas.

That has to be a panic-inducing feeling. Sorry that you got stuck dealing with that, but glad you have a plan for a worst case scenario. My wife and I keep our expenses low enough (and are lucky to have high enough income from our jobs) that a little bit of side-hustle income (or severance/unemployment) would cover the gap between income and expenses if one of us loses a job. So far I have banked on the fact that we are in different fields (and I work for the government) to assume that we would not both lose our jobs at the same time, but we should probably have a worst case scenario plan in case that were to happen. Thanks for the reminder!

I actually work for a state government, so I’m pretty shielded from the craziness that is going on. I’ve got friends working with the federal government (and friends working for the private sector on government contracts) that are pretty nervous right now, though.

Well that’s a wee bit stressful!
Last year I was sort of laid off right before Christmas. I was working a temporary job that couldn’t exceed a certain # of hours, and my work didn’t let me know I was about ready to reach the cutoff point until one week beforehand. They were trying to hire me back on, but I work for the feds, and the hiring freeze put another wrench in that plan. So, I’ve been technically unemployed for three months now.
I didn’t have a fully stocked emergency fund when my job ended – not even close. Instead, I’m relying on my side hustle to hold me over. I’ve been doing it part-time while employed full-time for the past year. When I found out my job was ending, my game plan went like this: Email all of my clients and notify them I’m available for any and all work they can throw my way. Pitch 3 potential new clients per day. Let my network of writer homies know that I could use some leads if they’ve got any to spare (this helped big time; going to FinCon was great for developing the network that saved my ass later).
It’s worked out well; I’m actually making more money now than I was BEFORE when I was working. Of course, self-employment taxes are a bitch and overall I’m able to keep slightly less.

My goal going forward is to snag that job once the hiring freeze lifts (they’d boost my pay and job title a bit too). Then, keep as many clients on retainer as possible, but minimize my work for each. I have a finite capacity for freelance work – say, 12 articles/month while working full time – so I can either write 12 articles for one client, or one article for 12 clients.

By spreading my base to more clients, I’ll be better able to survive again should my position end (and who the f@#k knows with the current administration…). If I have 12 clients, I could boost my work with each one and step into full-time writing mode the next day, versus maintaining a high level with one client and finding 11 new ones.

That’s how it works in my head at least…that is a odd place to be sometimes though. 🙂

lol. I for one am glad you went to FinCon otherwise we wouldn’t have met!

I’m way impressed that you’re out there hustling and getting freelance work. I’ve done a TERRIBLE job at trying to monetize this blog or use it to find other work. Maybe you can teach me your ways if we meet up again at FinCon in Dallas.

Groceries are huge on this list…and I love that you are keeping Netflix!! I mean, if you are going to be stuck at home eating in you best have something good to watch!! 🙂 But seriously, this is a great “fire drill” for your finances (which, by the way I am now trademarking so don’t bother stealing it..). Everyone thinks about what might happen if they lost ytheir job but how many actually run through their financial strategy? Going so far as to figure out what resources you would tap first is such a great follow up and, again, one that most people wouldn’t think of. I talk to people ALL THE TIME that say they don’t know how much they have in their 401k or what it is allocated to…what?! Knowing those numbers is crucial in a financial emergency. Also, knowing your spending in each category via tracking is also huge! Great post, Ty!!

If we had a financial marine corps, I think you’d be a member. You responded with military precision to the perceived threat and knocked down that $1000 of spending.
Servo Pecuniam Semper!

Our emergency fund is inadequate, but we’re working on it this year. I had a real problem with scarcity when I was employed, so I kept in touch with my network and some recruiters, keeping my “ear to the ground” just in case…

thanks @emily_brookes:disqus – it actually wasn’t too stressful. I’m sure the stress would have hit had I actually lost my job, but the thought of it just make me do a quick check on my emergency plan. I think starting with a cash fund is a great place to start. When the flow of incoming funds stops – it’s important to have access to something! Thanks for stopping by!

Great post, Ty! Glad things turned out to be a whole bunch of nothing. I don’t have an official emergency financial plan per se, but I think it would be pretty similar to yours.

I think your last point is pretty important as well: keep up with your professional contacts and network. This could definitely help in terms of finding a new job.

Thanks @somerandomguyonline:disqus. Cutting expenses is a good way to weather the storm, but the storm only comes to an end once you’ve got a new job — networking a great way to find that next job. It’s way better than applying for jobs that you (and a million other job seekers) found on a career site.

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