This is an old post but I think it is worth bringing it back to the more recent posting list. Unfortunately, this is still happening more and more in the current economic environment.
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I talked with one of my long, lost friends from college the other night. He got my phone number from a mutual friend of ours and gave me a call. It was great talking to him and we spent about two hours on the phone trying to catch up. If you know me, you know that I hate talking on the phone for more than a few minutes so two hours was an extremely long time for me. It was nice to catch up with an old friend but unfortunately, all the news was not good.
He has been working for a IT company for the last five years and is making a nice six figure salary. Unfortunately, he is also spending like he makes six figures and has a nice house, two new cars, a houseboat and a motorcycle. He is the sole breadwinner since his wife stays at home to care for their two year old child. He received an email from his boss the other day saying that they need to have a meeting. This was strange to him since he almost never has to meet with his boss. His boss would not tell him what the meeting is about but would only say that he "may want to have his financial affairs in order". My buddy states the company has laid off a few people this year but he was told that he would be okay and that his job would be protected.
My buddy is now pretty scared that he is about to be laid off. He will probably get a pretty good severance package but one that is gone, he won't have anything to fall back on. He has no savings account and borrowed from his 401k to finance his boat. If he loses his job, the money he borrowed from his 401k will need to be paid back immediately or he will owe the federal government since that money will be taxed. Even if he hadn't borrowed money from his 401k, if he were to use the money prior to retirement, he will owe taxes and penalties for early withdrawal.
Emergency Fund. No matter what you call it, everyone needs to have cash set aside that they can get their hands on in the event of an emergency. Many financial planners recommend three to six months set aside to keep you afloat until you can get another job. Depending on your individual situation, I would recommend having six to twelve months of expenses set aside in this economy. I've set aside 8 months worth of expenses in case my employer decides they don't need anymore. I would keep my emergency funds in a simple savings account. With interest rates so low right now, you'll usually find the best rates online. I recommend WT DIRECT or HSBC for an online savings account. Both of these are free, no minimum balance accounts which means you can open them with $5 or $500 and you won't pay any minimum balance fees. (There goes your excuse about not having enough to open an account.)
If you don't currently have an emergency fund, don't wait, now is the time to start saving for the unexpected.
Live Below Your Means. My buddy makes over 100k a year but he also spends just that much. If he had only managed to spend less than he earned and set some money aside, he might be able to breathe a little easier right now. Just because you make $100k doesn't mean you don't have to spend $100k!!
There you have it. This post should be the inspiration you need to start saving. There is a good chance that your job is not guaranteed. You could get the axe at any time and you need to be prepared.
Image Credit: Daquella Manera