And the debate about an EF vs paying down high interest debt rages on... For those of you sitting on the fence, or possibly looking for some fresh information and a new perspective, here is some food for thought.
Background: I was a sales and customer service Trainer up until 6/30 of this year when they closed our location and I was laid off. Ugh... For the first time in my life, I applied for unemployment. After my experience with unemployment, (which is something you as a worker NEVER pay for, it's paid for by the company that employs you), I now have a different view on the need and design of my EF, and here's why.
One needs to seriously take a look at one's expenditures and get an idea of what exactly you have to pay each month if you were to be unemployeed. Housing, utilities, minimums on debt. Keep in mind that you will likely want to keep things like internet access and phone service, b/c they make it easier to fidn a job and get interviews, and your gas budget may go up driving around looking for jobs. Other things, like cable TV and your lawn service can probably be cut. Get a number. For me, it's $2100 give or take.
Now, go to
[*] What is the waiting time for benefits to begin?
[*] How are benefits calculated, and is there a maximum benefit amount?
[*] Are taxes taken out automatically or do you have the option to have no taxes removed?
[*] How long do you get benefits, and is there a possibility of extending them under certain circumstances?
Alright. Here in SC there is a 1 week waiting period after you lose your job, then you wait a week and file, and it takes about a week to get the check, so I estimate a 3 wk waiting period. Benefits are calulated at 50% of your earings for the past 5 quarters up to $303 per week pre-tax. Please note that if you make 100k per year, unemployment is likely NOT going to pay you half, or 50k, in benefits. SC gives you the option to have no state or federal taxes removed, and you receive benefits for 13 weeks with the option to extend another 13 weeks if approved for a total of 26 weeks (6 months).
Now, take the max you can get per wk from unemployment, multiply by 4, and that's what you'll get per month. In my case, $1212. DH gives me $1100 per month for household expenses (and keeps $500 for allowance), so his pay and unemployment will actually cover my expenses and then some for 6 months. Cool.
What if he gets laid off at the same time, you say? My 1212 plus his 1212 = $2424, more than enough to pay expenses.
So, here was my revelation: I can get up to 6 months unemployment which, at my current budget, will more than cover all necessary expenses. It takes on average 6 months to find a job, so the need to an EF in case I loose my job is actually quite low. Therefore, I feel secure in diverting most of my extra income directly to debt while stashing away a very small amount ($500-$1000) to cover medical co-pays or car repairs should they happen.
Any thoughts?
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ima et al: i would LOVE to have a big beefy EF right now, without doubt! luckily i don't sleep well at night anyways, so there's no loss there
for now, that is!