It’s mid-October 2014, and I’m cranking away on a PowerPoint presentation in my office at the Fortune 50 Company where I work. My manager calls me out of the blue. “Hey Jon, I need to talk to you, I’ve got some bad news,” she starts. “You know that re-org that we’re going through, well it turns out that your position is going to be eliminated along with several others. I’m not supposed to say anything, but I didn’t want you to be caught by surprise. You’re going to be laid off. They’ll let you know formally in about a month.”
The Reality Sinks In
I was truly shocked. I had recently been promoted into my current position and had been steadily rising up the ranks for the past 13 years. “Okay,” I said “thanks for giving me the heads up, I really appreciate it.” “It’s the least I could do, I feel terrible about this,” and she hung up.
That night coming home from the office I was in a daze. I decided to stop by the local music store on my way home and check out some high-end guitars. I had started learning guitar about two years prior and still had the cheap starter one that I had bought back then. I bought the cheap guitar because I wanted to make sure I was going to stick with it before I paid real money for a good one. But more recently, I had been thinking that after two years, it was time for me to take the plunge.
I called my wife from the parking lot:
me: “Honey, I just found out that I’m going to be laid off, they’ll let me know officially next month.”
wife: “Oh no, are you OK?”
me: “Yeah, I’m fine. In fact, I really want to go buy a Martin guitar.”
wife: “What? Really? Do you think that’s okay to do right now?”
me: “Yeah, I do. If I don’t do it now, who knows when I will since we don’t know what the future holds. I don’t want to go into this whole layoff thing with a bad attitude, and I’ll have plenty of time to play it, that’s for sure.”
wife: “Ok, I agree, I think you should get it!”
And I did.
Now, I wouldn’t recommend this strategy to everyone, but it was great for me. I can tell you that the Martin guitar is a thing of beauty. If I was any good at playing it, it would be even better!
So, why did I go out and drop $500 on a brand new guitar the day I found out that I was losing my job? The job that provided 95% of our household income? Because I had an emergency fund.
My Emergency Fund
I didn’t always have an emergency fund, but I learned my lesson back in 2008. That’s when I almost got hit by the first big round of layoffs at our company (see Why I started this blog). After dodging that bullet, I started to sock away money every year to build up an emergency fund. By the time I actually needed it, my emergency fund was ready to go. Here was my situation in 2014.
My company offers two weeks of severance payments for every year of service. At that point, I had been there for 13 years, so I had 26 weeks or a full six months-worth of payments coming. I knew these payments were coming and had them in my plan.
I also had over $90,000 available through my HELOC (see Why HELOCs are awesome), which would fund our household for at least ten months. At the end of the severance payments, I would be eligible for maximum unemployment benefits from the state of about $2,500 per month. Adding in those payments, my HELOC/unemployment combination would have lasted well over a year without too much cost cutting.
An additional bonus, which I did not expect, was that they paid me for my unused vacation days at the time of my termination. So, I received a few thousand dollars unexpectedly for the three weeks of vacation I had not taken at that point, which was nice to have.
So, how much time did my emergency fund buy me? In this case, with severance payments, plus unemployment, plus HELOC, I had over a year and a half of full expenses covered. Not bad.
Why You Need an Emergency Fund
When I think about the panic that would have set in that day in 2014 had I not had the confidence of knowing I had money stashed away, it makes me shudder. This is why I think that everyone needs an emergency fund. The size will vary depending on your situation, but you need to be ready for “life” to happen.
Here are some situations that would be helped by an emergency fund. And while these specific things may not happen to you, they’re happening to somebody every single day, so it could just be a matter of time, you never know.
- You get laid off or fired
- You have a health emergency and can’t work
- You have to travel unexpectedly for a funeral or to visit a sick relative
- You get in a bad car accident and can’t work
- You need to pay insurance deductibles (health or automobile)
- Your car needs major repairs
- Your house needs a new roof unexpectedly
You can see how all of these things could happen to anyone. This is why you should start saving for them now so that you can pay for them if/when they happen to you.
A Happy (Enough) Ending
So, how did things turn out? Happy enough. I spent the winter at home with my wife and kids, which was fantastic. I had a good attitude and really enjoyed the time off with the family, and my guitar. I also got a glimpse into what life might be like in retirement, which has left me more eager than ever to get there.
I was ultimately hired back at the same employer the first week of April 2015, so I basically had a three-month sabbatical. The good news is that I didn’t even have to tap into the HELOC funds or bother with unemployment.
My guitar playing improved dramatically although I’m nowhere near good enough to do the Martin justice. If you play guitar and ever have the opportunity, I highly recommend that you try one. I still love to play it although I don’t have as much time now as I did then.
My advice to you? Have an emergency fund and know your plan. I knew that I had 18 months with nothing to worry about and it allowed me to really make the most of my time off with no regrets.
Do you have an emergency fund? How many months of living expenses is it? Are you using a HELOC as part of the plan?