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Jan 5, 2009 10:51 pm US/Central
Good Question: How Much Should I Save Pre-Layoff?
(WCCO)
Emotionally, virtually no one is ready to be laid off. Financially, it might be even worse. How much should we have saved in the event we lose our jobs?
"Most people aren't ready to pay their bills at the end of the month," said Kara McGuire, personal finance columnist for the Minneapolis Star Tribune, and
co-host of the Web video "Dollar Duo."
According to McGuire, the old rule was that people should have enough money in savings to cover three to six months of basic living expenses: mortgage and car payments, food and childcare costs.
But that is changing. Many experts are suggesting six to 12 months of savings, because it's simply taking so long for laid-off workers to find new jobs.
"If you're a one-income earning family, you have high expenses, or you're pretty much on the chopping block, you know your industry is kind of in turmoil, or you've heard that maybe there going to be layoffs at your company, I'd go six months," said McGuire.
She said that twelve months is such an intimidating figure, it may discourage people from saving anything at all.
"But if you earn a two-income household and you live within your means, and you feel pretty secure with having your job or about being able to find another one, I'd go with three months," said McGuire.
It's not an easy task, considering six months of a $1500 mortgage payment adds up to $9000.
"Don't focus on the 'It's gonna take forever to get to this goal,' just try to do something," said McGuire.
Unemployment insurance in Minnesota provides some income, but it's capped at $566 a week.
"It helps, but you're not gonna get your full paycheck," said McGuire.
State law provides benefits until you reach one-third of your salary over the past 12 months. The weekly benefit is capped at 50 percent of your average weekly salary.
McGuire suggested analyzing your current spending and looking for ways to shave unnecessary expenditures.
"The comfort, the peace of mind, that I have some money set aside does make up for missing that dinner out," she said.
"If you can't find any way to save otherwise… I might stop the 401(k)" contributions, said McGuire.
Typically, financial planners advised fully funding your 401(k) prior to putting money into savings, so employees could take advantage of the company match. But with the uncertain economy, it may make more sense to build up an emergency fund first.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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