GRS Home  Forum Home
Bank Rates Center
   Savings Account Rates
   Money Market Rates
   Highest CD Rates
Insurance Rates Center
  Auto           Health
   Life              Home
Mortgage Rates Center
  Mortgage Rates
  Mortgage Quotes

Last visit was:
A place for Get Rich Slowly readers to ask questions
and exchange ideas
It is currently Mon Sep 01, 2014 11:54 am




Post new topic Reply to topic  [ 45 posts ]  Go to page 1, 2, 3  Next
Author Message
 Post subject: Do you factor unemployment into your Emergency Fund target?
PostPosted: Mon Jan 11, 2010 9:25 am 

Joined: Tue Jan 20, 2009 11:38 pm
Posts: 78
Hi everyone. Thanks to this blog, I've been contributing to an emergency fund for the past two years. For me, this is basically a cushion in the event that I lose my job, which would be as a result of our main office closing our local studio. There is no indication this will happen, but I work in a volatile industry and have gone through this before at a different company.

So, assuming the worst, I would be laid off. I would be eligible for unemployment, which would be around $2100/month. When I calculate my EF target, should I base it on six months' living expenses, including unemployment? Or not? I'm at $21k right now, and need to get to $24k to have six months without unemployment. I feel like it might be overkill and I could cap this at $20k, then start saving for a new car and down payment more aggressively.

It seems a bit odd not to include the unemployment $, because I'm not going to leave of my own volition unless I have another job, and I am very confident I won't be fired. :)

I know the EF can cover other things, but in my case the main one is unemployment. I would be able to cover a car emergency or other snafu by pulling money out of the overpayment I send on my mortgage each month, or my "fun money."

Just curious what other people are doing.


Top
Offline Profile   
 Post subject:
PostPosted: Mon Jan 11, 2010 9:42 am 

Joined: Thu Nov 19, 2009 11:52 am
Posts: 114
I include total and complete unemployment in my emergency fund. I think of the "what ifs?": What if unemployment takes a while to process? What if DH and I are BOTH unemployed? What if unemployment isn't enough to cover basic expenses? Do you know how much you would receive from unemployment? I have a good idea of what I'd receive, and it would only cover our mortgage payment and groceries (and that's if DH and I eat mostly ramen noodles and get the good, healthy food for the kids). If DH is on unemployment too, it would still be really, really tight, even if we scrimp/cut back/eliminate some categories from our budget.

Personally, I would feel secure only with six months' living expenses of my own money in an emergency fund, but YMMV. Besides, I think it's Murphy's Law that something major will happen while someone is unemployed - that's when your dog gets sick, or you get in a car accident, or your kid breaks his arm, or you need a new toilet before your floor is flooded.

Another thing to consider is that it might take at least 6 months to find a new job. I can't remember where I read this, but some financial guru advocates having one month of expenses for every 1% of the unemployment rate, plus one month. In other words, the current unemployment rate is 10% - so you should try to get 11 months of savings.

_________________
Check out my blog! http://crimsonandclover.typepad.com


Top
Offline Profile   
 Post subject: Re: Do you factor unemployment into your Emergency Fund targ
PostPosted: Mon Jan 11, 2010 10:06 am 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5356
Cely wrote:
I'm at $21k right now, and need to get to $24k to have six months without unemployment. I feel like it might be overkill and I could cap this at $20k, then start saving for a new car and down payment more aggressively.


I think rather than have a set number of months of expenses in an EF it is better to have a "contingency budget" that is a budget assuming you get laid off. So you make a budget of your income and expenses for XXX months assuming you were laid off now.

But if you are worried about getting laid off I would NOT even think about taking out a new car loan. When you start saying things like "down payment" in this situation it is worrisome! You do not want another monthly expense to worry about!

You are basically saying your expenses are $4000 a month. That seems fairly high. When you make a contingency budget you might be able to get that down to $2000-$3000. Assuming you have kept your mortgage/rent to less than 25% of your pay you have over $3000 is other monthly expenses. That is not outrageous but in a pinch, couldn't you reduce that by not eating out, cutting back on energy usage, driving, etc? Having $21,000 is a fairly good EF in my opinion but only if you know what it is going to cover and are sure it is enough.


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Mon Jan 11, 2010 10:11 am 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5356
Blueberry Scone wrote:
Another thing to consider is that it might take at least 6 months to find a new job. I can't remember where I read this, but some financial guru advocates having one month of expenses for every 1% of the unemployment rate, plus one month. In other words, the current unemployment rate is 10% - so you should try to get 11 months of savings.


That's an interesting rule of thumb but I don't think that advice is worth much. You really have to consider your own prospects, and honestly. If you are a highly skilled autoworker living in Detroit, well, your job prospects are dismal through no fault of your own unless you move are start over in a new career. But if you are a nurse you can probably get a job very quickly since thereis a shortage. Things vary so much by your field and location that a rule of thumb like that does not really help an individual plan.


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Mon Jan 11, 2010 10:18 am 

Joined: Thu Nov 19, 2009 11:52 am
Posts: 114
DoingHomework wrote:
Blueberry Scone wrote:
Another thing to consider is that it might take at least 6 months to find a new job. I can't remember where I read this, but some financial guru advocates having one month of expenses for every 1% of the unemployment rate, plus one month. In other words, the current unemployment rate is 10% - so you should try to get 11 months of savings.


That's an interesting rule of thumb but I don't think that advice is worth much. You really have to consider your own prospects, and honestly. If you are a highly skilled autoworker living in Detroit, well, your job prospects are dismal through no fault of your own unless you move are start over in a new career. But if you are a nurse you can probably get a job very quickly since thereis a shortage. Things vary so much by your field and location that a rule of thumb like that does not really help an individual plan.


That's a good point. If the OP is in a state with a really low unemployment rate, it won't be that much. And, you don't want to save and save and save and save for your emergency fund, either - you'll never start attacking your debt.

_________________
Check out my blog! http://crimsonandclover.typepad.com


Top
Offline Profile   
 Post subject:
PostPosted: Mon Jan 11, 2010 10:49 am 

Joined: Tue Jan 20, 2009 11:38 pm
Posts: 78
A bit more info on me (OP).

Yes, $4000/month is what I'm using as my monthly expenses estimate. This assumes I will cut back on fun stuff, but still keep things like my gym membership, iPhone, and some allowance for entertainment and eating out. My car is paid for and I have a mortgage. I do live in an expensive part of the country. If I had to go into lifeboat mode, I'd cut out the gym and cut to the bone elsewhere, which would probably bring me down to about $3500/month.

The "down payment" I refer to is for a house. I own a condo and would like to eventually keep this as a rental property and buy a home, so I want to start saving for that down payment. As for saving for a car, I'd save up and buy used (I have never bought a new car and don't plan to start).

If I can hold out to $24K, that would give me 6 months' expenses without any unemployment, and just over 12 months with unemployment. I think I should probably suck it up and go to $24K. :) For some reason, now that I'm over 20K, I just feel like saving more is a big chore. I want to start saving for other goals. As always, this is just a mental thing.


Top
Offline Profile   
 Post subject:
PostPosted: Mon Jan 11, 2010 12:20 pm 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5356
Cely wrote:
A bit more info on me (OP).

Yes, $4000/month is what I'm using as my monthly expenses estimate. This assumes I will cut back on fun stuff, but still keep things like my gym membership, iPhone, and some allowance for entertainment and eating out. My car is paid for and I have a mortgage. I do live in an expensive part of the country. If I had to go into lifeboat mode, I'd cut out the gym and cut to the bone elsewhere, which would probably bring me down to about $3500/month.

The "down payment" I refer to is for a house. I own a condo and would like to eventually keep this as a rental property and buy a home, so I want to start saving for that down payment. As for saving for a car, I'd save up and buy used (I have never bought a new car and don't plan to start).

If I can hold out to $24K, that would give me 6 months' expenses without any unemployment, and just over 12 months with unemployment. I think I should probably suck it up and go to $24K. :) For some reason, now that I'm over 20K, I just feel like saving more is a big chore. I want to start saving for other goals. As always, this is just a mental thing.


Thanks for the clarification. It now makes more sense and it sounds like you have thought it through. It's really up to you what you do. $21k is more than 5 months EF. Saving for 6 months is just a round number. I doubt anyone could say that it could take 5 months to get a newjob but not as much as 6. The truth is you really don't know so you have to have a plan and be prepared for whatever.

If you have $21k saved and think it is better to focus on house savings, retirement, or something like that, I would not argue with that.


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Mon Jan 11, 2010 2:49 pm 

Joined: Sun Apr 29, 2007 8:11 am
Posts: 1088
Location: Sunny Florida
No, we don't include unemployment comp in our calculation. Florida's comp rate is pretty low, the maximum is $275 a week (this rate puts Fla. in the bottom 5 in the country for unemployment comp). Also, our goal for our emergency fund is to cover, with cash, what we would need in an emergency, any benefits that we would be eligible for would be "bonus" money.

_________________
Sam

http://adventures-of-sam.blogspot.com
(Follow Sam's financial and real estate adventures.)


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Tue Jan 12, 2010 7:11 am 

Joined: Mon Nov 02, 2009 5:19 am
Posts: 25
Location: Atlanta, GA
Cely, you should not include unemployment in your EF calculations.

There are many reasons why you will not receive unemployment: your states policies, unemployment fund running out of money, the reason why you are unemployed, any income you might have at the time, etc.

You do not want to find out when you are unemployed that you do not qualify. You should not assume it is a given you will receive it.


Top
Offline Profile   
 Post subject: another way to calculate
PostPosted: Tue Jan 12, 2010 9:20 am 

Joined: Wed Mar 26, 2008 1:35 pm
Posts: 444
Location: USA
I just finished reading All your worth and the way they want you to calculate is to find out what your "needs" are and then multiply by six. To me it makes more sense to define their "needs" as a fixed recurring expenses, which she includes mortgage/rent, all recurring bills including fun bills that cannot be canceled (such as health insurance premium from paycheck plus est. of monthly health expenses) things like gas, electricity, phone, other insurance, etc. She has a formula for what part of grocery is "needs" (650 for a family of 4). Her list is bare-boned (for our family it comes to just over 2K a month), but at the same time does not include unemployment in the mix. If you do get unemployment, that will obviously make it last longer, but at the same time there may be other unexpected expenses during that time (what if you are unemployed due to illness/accident?).

I would be on cloud nine and move onto other things if I had a 20K emergency fund (I'm shooting for 8K this year, 12K at some point), but I guess everyone's circumstances are different.
Any tips for putting money towards saving? I don't want to stop contributing to retirement, because looking at my budget I should (theoretically) be able to do both. For my entire life my comfort level re: savings has been 2K, but as seen above it should actually be 12K.


Top
Offline Profile   
 Post subject: Re: another way to calculate
PostPosted: Tue Jan 12, 2010 9:33 am 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5356
partgypsy wrote:
Any tips for putting money towards saving? I don't want to stop contributing to retirement, because looking at my budget I should (theoretically) be able to do both.


Have a fixed amount automatically transferred each month into savings. When it is automatic it forces you to plan for it and adjust your other spending accordingly.


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Tue Jan 12, 2010 9:34 am 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1721
Location: Ottawa, Canada
qkjones wrote:
There are many reasons why you will not receive unemployment: unemployment fund running out of money


Is that a real concern, or just scaremongering? Has any state in the US ever eliminated - or even just reduced - unemployment insurance payouts that were rightfully deserved and claimed a lack of funds as the reason?

The government may carry a frightening amount of debt, but it's my understanding that they have an extremely solid record of paying what they owe.


Top
Offline Profile   
 Post subject:
PostPosted: Tue Jan 12, 2010 9:44 am 

Joined: Thu Nov 19, 2009 11:52 am
Posts: 114
kombat wrote:
qkjones wrote:
There are many reasons why you will not receive unemployment: unemployment fund running out of money


Is that a real concern, or just scaremongering? Has any state in the US ever eliminated - or even just reduced - unemployment insurance payouts that were rightfully deserved and claimed a lack of funds as the reason?

The government may carry a frightening amount of debt, but it's my understanding that they have an extremely solid record of paying what they owe.


I don't know about the state just not paying unemployment, but maybe there will be other delays due to the fund running out - maybe it takes longer to process the unemployment claim, or there are stricter regulations regarding who can receive unemployment.

_________________
Check out my blog! http://crimsonandclover.typepad.com


Top
Offline Profile   
 Post subject:
PostPosted: Tue Jan 12, 2010 9:52 am 
Moderator

Joined: Wed Sep 23, 2009 9:01 am
Posts: 5356
kombat wrote:
qkjones wrote:
There are many reasons why you will not receive unemployment: unemployment fund running out of money


Is that a real concern, or just scaremongering? Has any state in the US ever eliminated - or even just reduced - unemployment insurance payouts that were rightfully deserved and claimed a lack of funds as the reason?

The government may carry a frightening amount of debt, but it's my understanding that they have an extremely solid record of paying what they owe.


I think California issued IOUs instead of checks for unemployment but I could be wrong. Arizona (my state) is planning to stop issuing checks later this spring. I am not certain these applied to unemployment benefits but it did apply to many forma of government payment including payments to businesses that sold stuff to the State.

I tend to think you are right that there is a lot of scaremongering and political posturing going on. But it would not be good to plan on having unemployment then find out you get an IOU instead that can't be cashed for 6 months.

Things are really bad right now in a lot of cities, counties, and states in the US. I personally think that expenditures and entitlements are going to have to be cut dramatically and that will mean a lot of previously safe things are no longer available.


In Arizona, which is not the worst situation in the US, there is more "voter protected" required expenditure in the State budget than ALL of the revenue. This means that the legislature and govenor are powerless to cut spending. We have had a series of ballot initiatives that voters have approved that require that schools and various other things are funded at a certain level. Now, state revenues are so low that if those programs are funded as required there is absolutely nothing left. That means ALL state services and employees will have to be cut. The legislature and govenor have no constitutional authority to get around this. They are trying to get a ballot initiative to give them the authority to not comply with the voter protected spending requirements for a couple of years but they missed the deadline for getting it on the ballot!.

In any case, things are quite bad, all the scaremongering aside. I would not want to be in a position of relying on the government for anything for the next couple of years!


Top
Offline Profile E-mail   
 Post subject:
PostPosted: Tue Jan 12, 2010 10:27 am 

Joined: Sat May 30, 2009 11:43 am
Posts: 175
I'm not planning on getting my social security back when I look to retirement, so I see no reason why I should plan on getting my unemployment back. Yes, I currently live in California.


Top
Offline Profile   
Display posts from previous:  Sort by  
Post new topic Reply to topic  [ 45 posts ]  Moderators: bpgui, JerichoHill Go to page 1, 2, 3  Next


Who is online

Users browsing this forum: No registered users and 17 guests


You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot post attachments in this forum

Search for:
Jump to:  
Powered by phpBB © 2000, 2002, 2005, 2007 phpBB Group
Theme created StylerBB.net & kodeki