Worried about the job market? It's time to build emergency savings

Worried about the job market? It's time to build emergency savings
While a healthcare worker might not spend very long being unemployed, the same might not be the case for a tech worker, and there is a case for up to 18 months' of savings.
AUG 12, 2024

If clients are worried about rising unemployment and economic uncertainty, it is a good time to remind them about emergency savings, advisors say.

Getting laid off is an increasing concern in some sectors, and the potential time that could be spent finding another job means that having some extra cushion is not a bad idea. That’s especially the case when liquid assets can be earning 4 percent or more.

But how much cash people should squirrel away is up for debate.

Advisor Catherine Valega, founder of Green Bee Advisory, said she is recommending having savings to cover as much as 18 months of expenses.

“I have always been a more conservative advisor,” Valega said. “I have never believed in three to six months of expenses” as a target.

Beyond having working capital in a convenient place like a bank account, extra funds can be getting 4 percent or 5 percent in high yield savings accounts or good rates in money markets or Treasury Bills, she noted.

“It shouldn’t be painful. Our savings are earning something for us now,” she said. “It’s kind of a weird sweet spot that we’re in right now, where our cash can be doing pretty well.”

Another advisor, Niv Persaud, managing director at Transition Planning & Guidance, said she recommends that dual-income households have nine months of expenses in emergency reserves and 12 months’ worth for single-income households.

“If a client anticipates being laid off, I encourage them to build their emergency reserve, cut unnecessary spending, explore health insurance, and begin searching for a new job,” Persaud said in an email.

People should consider how long it could take to find a new job and save accordingly, she said. That varies by sector, seniority, and income level.

“If they are self-employed, it may take over 12 months to end their business and find new employment,” she said. “Also, the job search process is longer for higher-income individuals, especially if they manage people and a P&L.”

Considering where to reduce spending is also useful for people facing the possibility of a layoff, said Nycole Freer, owner of Eden Financial.

“I would explore where they can cut back in their budget,” Freer said in an email. “I would see where all their money is currently being held such as in the bank, investment accounts, retirement accounts, etc. and be creative on where to draw money from to pay bills and expenses if there is a deficit from unemployment and severance.”

Most of Valega’s clients are women who own businesses, she said.

“I am starting to hear rumblings of the tech markets slowing down,” she said. That has led to some people in the tech sector rethinking what they might do for income in the future, she noted.

The high income levels in tech can also make people more vulnerable after layoffs if they also have high costs of living – it can take longer to find a new job that pays similarly, she noted.

Meanwhile, layoffs affecting critical workers, like nurses or others healthcare positions, are still difficult – but finding employment is less challenging, she said.

While having a year and a half of expenses saved is conservative, it gives people options, she said.

“If something were to happen, you don’t just have to jump” to the first job that is offered, she said. “I like my clients to have a little more room and flexibility in their choice of career or next steps.”

Retirement savings gap persists despite bull market, Ascensus CEO says

Latest News

Healthcare focused RIA extends reach with new practice group
Healthcare focused RIA extends reach with new practice group

Florida based financial advisory firm is addressing unique industry challenges.

Stocks retain election gains, dollar eases
Stocks retain election gains, dollar eases

Traders take a pause and focus on Fed rate cut bets.

Treasury sell-off eases as investors weigh Trump impact
Treasury sell-off eases as investors weigh Trump impact

Global markets want to understand likely outcome from policies.

Crypto frenzy boosts BlackRock iShares to new high
Crypto frenzy boosts BlackRock iShares to new high

Bitcoin ETF took more than $4 billion post-election.

Hedge funds face reality of anti-ESG
Hedge funds face reality of anti-ESG

Trump win was bad news for funds exposed to renewables.

SPONSORED Out with the old and in with the new: a 50% private markets portfolio

A great man died recently, but this did not make headlines. In fact, it barely even made the news. Maybe it’s because many have already mourned the departure of his greatest legacy: the 60/40 portfolio.

SPONSORED Destiny Wealth Partners: RIA Team of the Year shares keys to success

Discover the award-winning strategies behind Destiny Wealth Partners' client-centric approach.