I suppose I’ve known it wasn’t getting better yet and this week’s unemployment numbers confirm it. Unemployment is now at a 26 year high. We’re still cutting jobs but some economists are starting to think we’re nearing bottom as the number of cuts shrinks each month.
Anecdotally, I’m seeing more people lose their jobs around me and my company anticipates further reductions. Unfortunately, a lot of the reductions are due to outsourcing major chunks of work to India so it’s unlikely those jobs will return once the economy turns around. While I’m feeling okay from a job security standpoint right now, there could be rocky roads ahead.
Because of this uncertainty, we are taking a renewed effort to increase our emergency fund. Right now we have about 6 months expenses on hand (assuming that both my wife and I were out of work). If I lose my job but my wife stays employed, our emergency fund would last us about 2.5 years or so. I’d prefer to plan for the worst so we will be attempting to double our emergency fund so that we can comfortably live for a year without income. If we are able to sock that much away, we can always use some of those funds to pay down our home mortgage or invest once the economy starts taking off again. Having that much cash in the bank during a downturn is great, but I’d hate to keep it all liquid when the economy is going strong.
It’s times like this that it becomes painfully obvious that it’s not really what you make but what you spend. We have managed to keep our expenses at about 49% of our after tax income. By keeping expenses as low as possible while still enjoying some luxuries, we are ultimately going to have to build a smaller emergency fund than if we had spent money more loosely.