You’re probably well aware that you should stash away some money in a high-yield savings account in case of various emergencies. This is particularly true now, during an era of high-interest rates and a slowing economy, along with announced job cuts at a number of large companies.
But it can be hard to know exactly how much you should sock away. If you’re concerned about losing your job, it’s a good time to do the math in terms of how long it might take to get a new job and how much unemployment you might earn along the way to help defray your expenses. Here’s how to start.
How Long Does It Usually Take To Find a New Job?
There is no flat answer to how long it takes to find a new job. Numerous variables have a big impact on the time frame, from the state of the current job market to your personal qualifications and credentials to how much money you want to earn.
However, many experts in the field estimate that it will take between three and six months on average to land a new job. Others suggest that you should allot one month for every $10,000 that you want to earn. Thus, if you’re looking for a $60,000 job, it might take six months; but, if you want to earn $120,000, it might take a year.
This is a good place to start if you’re trying to calculate how much cash you need stashed in case you lose your job. Depending on how much money you plan to earn, estimate the number of months it might take you to get that new job and multiply it by your monthly expenses. For example, if you’re looking for a $50,000 salary and your expenses are $4,000 per month, you might want to start with $20,000 in your savings account.
How Much Do Unemployment Benefits Pay?
There is no flat rate for unemployment benefits. They vary based on your earnings and the state in which you live.
In California, for example, your weekly unemployment benefits can range from $40 to $450, or roughly $173 to $1,950 per month. Those with quarterly earnings of $900 to $949 earn the lowest benefit of $40 per week. To earn the maximum weekly benefit in California, you’d need quarterly earnings of at least $11,674, or approximately $47,000 per year.
If you’re earning unemployment benefits, you can reduce the amount you need to keep in your emergency fund as some of your expenses are being covered. For example, if you’re earning $450 per week in unemployment benefits and your expenses are $4,000 per month, as in the above example, you may be able to get by with just over $10,000 in savings, instead of $20,000.
So, How Much Should You Stash in Case You Lose Your Job?
One of the most commonly quoted suggestions for how much you should keep in a general emergency fund is three to six months’ worth of expenses. But that is just a generic suggestion that doesn’t take into account the realities of your own personal financial situation.
If you’re self-employed, for example, many experts recommend bumping that up to 12 months of expenses. This is because self-employed workers generally have fluctuating incomes, and they don’t receive any unemployment insurance if they lose their work. Generally speaking, self-employed individuals have less job security than those who work at traditional companies, although this is not always the case.
But there are other important factors that can affect how much you should keep in your emergency fund. If you are single, for example, you generally won’t need to sock away as much money as if you have a spouse and/or family. The simple mathematics of having more mouths to feed and shelter means that you’ll need more money in the case of an emergency.
Where you live also can play a big role. In a city with ample job opportunities, for example, you won’t have to reserve as much money in case of job loss because you’re more likely to get a new job rapidly.
The cost of living where you reside can also be a factor. In a pricey city like New York or Los Angeles, you’ll likely have much higher monthly expenses than if you live in Omaha. As your income will fall to zero no matter where you live if you lose your job — not counting any unemployment benefits — the cost of daily living will help dictate the size of your emergency fund.
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