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Could you weather a layoff?

A new survey says many people could pay the bills for a year or more if they lost their jobs.

By Karen Datko Feb 16, 2011 2:42PM

This post comes from Emmet Pierce at partner site MoneyRates.com.

 

MoneyRates on MSN MoneyAn overwhelming majority of readers who responded to an MSN Money/MoneyRates.com online poll say they have prepared for unanticipated downturns in their finances by creating emergency funds.

 

The online poll, which ran Feb. 7-11 and drew 26,409 responses, asked how long readers could live on their emergency funds if they lost their jobs today. Forty percent said they could last more than a year, followed by 11% at a single year, 15% at six months, 12% at three months and 8% at a single month. Only 14% said they had no emergency savings.

One of the basics of sound financial planning is establishing a fund for unforeseen expenses. Financial planners typically recommend an emergency fund equal to between three and six months of normal expenses.

 

People are fearful

The poll response may reflect the fear and anxiety people feel over the prolonged recession. With unemployment high and many people still losing homes to foreclosure, it's easy to understand the importance of saving for emergencies, says Thad Pugmire of Financial Planning Consultants in San Diego.

 

"People have had a difficult education," he says. "They are learning to be a little more conservative. Sometimes adversity is a good teacher."

 

The generation that was raised during the Great Depression -- the parents of the baby boomers -- emerged with sound understanding of the need for saving, he adds. Post continues after video.

Ideally, an emergency fund is liquid and accessible on short notice. The idea is to avoid having to sell equities and bonds during an economic downturn. Although the purpose is not financial growth, some people worry about the low returns available from even the best savings accounts, money market accounts and checking accounts.

 

How to maximize returns

Chad Nehring of Conceptual Financial Planning in Appleton, Wis., recommends "laddering" a certificate-of-deposit portfolio to keep some money available for emergencies while maximizing your returns. For example, if you buy a one-year, a two-year and a three-year CD, you are never more than 12 months away from part of your funds. The longer the CD terms, the higher the interest rates. As each CD matures, you can roll it over into a new one, giving you access to the best CD rates.

Not everyone thinks consumers should rely heavily on emergency funds. Carolyn Taylor, a planner for Weatherly Asset Management in Del Mar, Calif., says rather than tying up six months' worth of expenses, some people may be better off relying on limited use of credit cards with low interest rates. Taylor also advises clients who need to reduce their expenses to check out mortgage refinance rates. Current mortgage rates remain at historic lows.

 

People who create a large financial cushion may decide to tap into it to pay down debt or increase retirement savings. Kelley C. Long, a financial coach in Chicago, cautions clients to first make sure they are paying all of their bills on time. If there is a shortfall between earnings and expenses, she recommends temporarily decreasing retirement savings.

 

"It takes much longer to recover from a black mark on a credit report than it does to do some catch-up savings, once income increases," she says.

 

More from MoneyRates.com and MSN Money:

10Comments
Feb 17, 2011 10:14AM
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They key to this article is that it was an online poll.  People that are in front of a computer have a higher chance of making more.  The poll should have also asked yearly salary to put things into context.  Maybe even number of children along with it.  I do not believe 40% of Americans could live a year on savings.  I just know too many people for this poll to be accurate.
Feb 17, 2011 9:57AM
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People under the age of 59.5 should not be penalized for taking the money out of their 401K so they don't lose their houses to foreclosure-paying off credit card bills(should also be a hardship) times are tough for plenty of legal, tax paying, hard working middle class Americans who have lost their jobs, can't find a job, have no savings, may be laid off in the near future.

Washington PLEASE WAKE UP and STOP thinking about yourselves for once. YOU HAVE YOUR BIG PENSIONS WE PAY FOR-YOU ARE SAFE or would you rather us go the way of Egypt.  Libya did.

Feb 17, 2011 4:46AM
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yeah maybe the writer of this article can afford to put money aside .. how about us who live pay check to pay check,, how about letting someone that makes 40,000 a year or less write this instead of someone making 70,000 plus,  
Feb 17, 2011 2:54PM
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“I'd rather be poor & ragged than work a crap job.  Plus there's no benefit to working anymore - they just take your money in taxes.  You get more benefits by not working and you get to sit on your a**.” - dontholdyourbreat

 

Spoken like a true loser, dontholdyourbreat. So it's a-okay for us to deal with the 9-5 bs five days a week to pay for you to sit on your a** but working is too good for a lazy low life like you, eh? There are places the federal government is building for "your kind", they are called FEMA Camps. Do know that people like me will be smiling when losers like you are rounded up like animals and sent to the slaughter.

 

Feb 17, 2011 2:15PM
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So a poll of computer users who visit a financial planning site says that many of them have plenty of savings.  And this is applicable to the general public how?

It doesn't "reflect the fear and anxiety people feel over the prolonged recession."  It reflects the type of people who frequent this site. 

We have all seen that the average American only has about $60K saved by the time they retire, and so says this very site.  Go to the search Money box at the top of this page and search for "Are you on track to retire rich."

How could they afford a year off in mid-career?

 

Feb 17, 2011 2:30PM
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"The online poll, which ran Feb. 7-11 and drew 26,409 responses, asked how long readers could live on their emergency funds if they lost their jobs today. Forty percent said they could last more than a year. "

 

Come on msn, having your own employee(s) take the poll over and over does not constitute a realistic figure on a poll. How stupid do you people think we are?  btw nice annoying Bank of America commercial ad you got going there; it really shows what msn is about.  

Feb 17, 2011 3:37PM
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INSOC

 

The way I see it, you're the loser & I'm the winner.  While you're at work today, I'll be skiing - thanks to working people like you.  Who's the loser now?

 

What's so bad about a FEMA camp?  They take care of you there, feeding & housing you.  Once again you lose.  Go back to kissing your boss'  a**.  Make sure you pucker up and when he tells you to jump, say, "Yes sir, how high"?

Jun 9, 2011 11:21AM
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I think I would be able to weather for a year or longer. I've been listening to Dave Ramsey and he encourages everyone to set aside enough for emergencies. He suggests three months of living expenses, but I just add a little bit with every paycheck. I love having access to financial planning consultants like him who help every day Americans stay on their feet. http://www.lifeinsuranceriversideca.com/

Feb 17, 2011 9:34AM
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Soon I'll loose my ISP, then Electricity. Forget about Gasoline...OPEC took care of my driving. (Hey, it saves on Car Insurance!) Thanks to being "Furloughed & Forgotten" (Promised to be re-hired but over 50, so UNEMPLOYABLE), being Bilked-out of ALL my savings by a trusted Con-man didn't help! Nor IS the U.S. Congress, when the answer for the ENTIRE U.S.A. is so-o-o extremely simple, but all they can do is "NOODLE-BASH & TALK", but then parties are just for play. IF you want Voters to live, lower the cost of living for only U.S. Citizen's and lower wages. (Is that hard to understand?)... not just stop U.I. for all. Voters would be back at producing American-goods, The Deficit would melt away. I'm finding my true friends can be counted on one hand. Oh, why, the comment the Con-man was trusted? He IS my brother (by birth, a close brother) and promised me if I EVER needed help i could count on him! Then when situations changed he just said, "THAT'S LIFE!"
Feb 17, 2011 12:06PM
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I've been unemployed for 10 years.  I used to write software and they replaced me with an Indian.  I used to make $120,000 / year.  Now I pick up cans in the street. 

 

I went to college, worked hard & saved and did everything one is supposed to do and I still ended up fu**ed.

 

My only consolation is that I don't pay any taxes to this screwed up country and I don't have to spend each day working at a job that I hate.  Most jobs are so awful that I'd rather slit my throat than have to do them everyday.  They're like adult day care.  I'd rather be poor & ragged than work a crap job.  Plus there's no benefit to working anymore - they just take your money in taxes.  You get more benefits by not working and you get to sit on your a**.

 

Picking up cans in the street is not so bad.  I get fresh air, work when I want and don't have a boss whom I can't stand up my a** and the money is tax free.  We're all fu**ed so what does it matter?   Most Americans are a slave to "The Man".  They go to Disney World once in a while and it makes them feel warm & fuzzy so that they can go on and not slit their throat.

 

You're just going to end up in a nursing home wearing a diaper and drinking your meals through a straw while your loving relatives come to visit you and tell you how much they love you & that everything is going to be all right, meanwhile they can't wait for you to croak so that they can have your assets.  God bless America.  Great country.

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