Emergency Savings are Critical
We (in the United States) are entering our 6th week of a partial government shutdown. We have been hearing about workers going to food banks. Interest-free loans for federal government workers. Some banks are also waiving certain fees and allowing their government worker customers to break CDs early. USAA and Chase bank have allowed furloughed government employees to suspend their monthly payments. Other banks are waiving late fees and overdraft fees.
Workers began looking for different ways to make ends meet and get through this period of furloughdom.
The number of paychecks that have not been paid out since the government shut down:
1 (Missed on January 11th)
Of course, the news that is “worth” covering (i.e. will generate clicks or attracts eyeballs) will be the stories of people struggling and suffering. Of the 800,000 workers that did not receive their first paycheck of 2019, several thousand are surely dipping into their emergency savings and are comfortable that they have enough to last several more missed paychecks.
However, those aren’t the stories we are hearing about. We are hearing about the workers that have been going to food banks, that have been returning Christmas gifts because they can’t afford payments after racking up (an average) of $1,230 of holiday debt (source).
It’s sad and scary that (seemingly) so many full time workers are unable to make it past one missed paycheck. But, based on the studies that come out every year, warning that around 2/3rds of Americans lack the savings to cover a $1,000 surprise expense (source), it makes sense.
Now would be a great time to get everyone to start thinking, “How many paychecks could I survive without?” We should all be prepared to go without a paycheck (or large unexpected expense) for some amount of time. It is recommended to have 3 months, 6 months, or even a full year of expenses saved up and liquid in case of an emergency.
How many paychecks could you miss?
With so many people unable to survive missing 1 paycheck, I decided to see how many I could survive without. Currently our monthly expenses are ~$4,400 (including $750 to charity that we would try not to end). Also, my wife now brings in some money part time. Based on those two things, with our current money, we could survive 11 missed paychecks. If we stopped donating immediately after my paychecks stopped, we would last 16 missed paychecks. Not bad.
If you need some ideas on how to find extra money to save, check out my recent post on 7 different ways to cut $50 off your monthly expenses. Once you have a constant flow of savings, use the 3 bucket system to figure out where to stash your money.
Once the government shutdown ends, and the furloughed workers receive their back pay (and they will) hopefully they take some of the money they saved at the food bank and put it into a savings account for the next emergency.
Hopefully, over the next 4,178 days I don’t miss a single paycheck. But, if I do, it’s nice to know that I would be “ok” for a little while. Hopefully long enough to start to see some income coming back my way.