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Have You Planned For A Job Loss?

General Motors auto workers walked off the job recently for the first time since 2007. This unfortunate event should serve as wakeup call to create an emergency fund now to tide you over for an extended period of time should you need help.

The world today is in far better shape than it was in 2007. You might remember when subprime mortgages grew into a full-blown international banking crisis, a preemptor to Lehman Brothers’ investment bank collapse. Huge bailouts saved us from global financial collapse before the Great Recession decimated the job and housing markets, taking years to recover.

Coincidentally, pundits are noting similarities to 2007-2008 using similar recent events, beginning with slower GDP growth, the UAW strike, the attack on Saudi Arabian oil installations, the Federal Reserve’s quarter-point rate cut – the second cut since 2008 – the Fed injecting money into the banking system and rampant recession rumors. So if history does repeat itself, it is even more important for you to have a well-funded emergency fund that will be ready to go should you need it.

How much will you need?

United Auto Workers (UAW) representatives feel their members should be sharing in the company’s growing profits, a growing mainstream America complaint. Except, this strike might end up costing GM $100 million a day, says the Wall Street Journal. 

Working Americans, probably like many automakers, will find they are ill prepared for involuntary wage or job loss. To go for any length of time without receiving a paycheck could lead some families to financial disaster.

While many displaced employees do receive a severance that includes paid vacation and personal time, that money should be used for retirement instead of tiding them over until their next potential job comes along. And that could take months.

In some states, unemployment pay is close-or-equal to the UAW strikers’ stipends.

All union members must follow the designated protocol until a bargain is reached. All dues-paying members must participate or not get paid their $250 per week after the 15th day of the strike. That comes to $6.25 an hour, below the federal minimum wage of $7.25, or $13,000 a year, and barely above the federal poverty line, of $12,490 for a single-person household, according to the Detroit Free Press.

How do I do it?

Bills don’t go away just because you’re unemployed. At a minimum, you should have three-to-six months’ living expenses in an emergency fund. While you’re employed, think about setting aside a percentage of your pay slightly higher than what you consider a “serious and workable” figure and stick to it. For example, if you put $250 every week (or $500 bi-wk.) in an account earning interest, and it doesn’t strap you in any way, would that be workable?

And what if you dedicated that $250 as the minimum, or base, but you put in $275 every week (or $550 bi-wk.) instead? Would that be workable? If so, if you should have a week where expenses cut too deep into the pie, you maintained your $250 base, you’re building up your cash reserves, and you still feel good about saving.

It is easy to figure out if that hypothetical $250 base is enough for what you’ll need. Simply tally up debt, food, health care, housing, insurance, personal expenses, transportation and utilities. The benefit to having an emergency fund is you have a cushion when you need it and a compounding interest rate when you don't.

Typically, it is human nature to overlook the benefits of sticking to budget. When you’re employed, you have a steady stream income and it is easy to overspend and overbuy. Like you, I am guilty. I didn’t realize until later on when I was downsizing from the big house to the little one: “Where did all this stuff come from?”

Within reason, there are things we want and need and I understand that. Retired individuals have told me that, after some reflection, the message they would send to their younger self is: “Instead of blowing all that money on all that stuff, and junk you don’t need, sock that money away for when you really need it; when you retire.”

How serious is the problem?

With mounting financial literacy concerns and the effects of financial instability on productivity and retirement security, some employers have introduced programs that encourage emergency savings.

The “Strengthening Financial Security Through Short-Term Savings Accounts Act of 2019,” a bipartisan Senate bill introduced earlier this year, will allow employers to set up emergency savings vehicles funded by automatic payroll deductions.

SunTrust Bank’s Education Program, for example, is offering their employees $1,000 to complete an eight-part financial education program that covers basic topics like budgeting, insurance and investing, as well as open and fund an emergency savings account.

Job loss is the primary reason for having an emergency fund, but not the only one. Find out more. At Hefren-Tillotson, we strive to be recognized for our unrivaled combination of successful wealth management solutions and exceptional client service. We can devise a emergency plan that will work best for you in any situation.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.
Hefren-Tillotson

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Hefren-Tillotson Inc. is a leading diversified financial services firm providing investment and retirement plan management and comprehensive, financial planning through MASTERPLAN® for individuals and businesses. The firm’s wealth management services are administered by Certified Financial Planner (CFP) professionals, Chartered Financial Analyst (CFA) Charter holders, attorneys, Chartered Life Underwriters, and CPA/PFS’s. Hefren-Tillotson offers corporate services including 401(k) retirement planning, executive financial counseling, fiduciary reviews and workplace financial planning seminars. Founded in 1948, the firm is headquartered in Pittsburgh and has offices located in Pittsburgh, Butler, Greensburg, North Hills, and South Hills. MEMBER SIPC.