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How Long Could You Last Without a Paycheck?

Cash

I have a lot of friends and family members who are impacted by the current government shutdown. Over the past few days I’ve been talking to them about the situation and their plans for surviving the furlough.

It turns out that many of them are unprepared for this type of financial holding pattern and very few of them have emergency funds to help them wait for the government to get back on track.

I must admit that I was surprised by the number of people who said they could survive two weeks without a paycheck, but not much longer than that. A lot of the people we know earn six figure salaries. A few of them earn as much as $200,000 a year, yet they don’t have enough money in the bank to get them through a month without pay.

I’ve heard that savings rates and emergency funds are proportional to the amount of income you earn. The more you make the more likely you are to save for a rainy day. The same can be said for those with college degrees. Those with advanced degrees tend to save more.

It’s interesting that this doesn’t appear to be the case for the people we know. We know a small group of high earners with advanced degrees who don’t have enough money to survive two missed paychecks.

Of course, you never know someone’s financial situation. They might be helping to pay for a sibling’s education or have extensive medical bills in need of repayment. Perhaps they have high student loan bills and an overly large mortgage. Whatever the reason they will be in trouble if the government remains shutdown.

I know that savings rates have fallen over the years, that fewer people plan for emergencies and that in times like this that we all start to question our previous financial decisions.

I’ve taken stock of my own financial situation over the last couple of days and verified that we could survive a few months without pay. If we started cashing out stocks and other less liquid assets we could last even longer. How about you? Are you prepared for an emergency and how long do you think you could last without a paycheck?

Slinky

Wednesday 9th of October 2013

Assuming only one of us lost our job, indefinitely. :) We can get by on either one of our incomes. We'd have to rein in some discretionary spending a little, but we'd be fine and even be able to keep putting 10% away for retirement. We've spent a long time working our way towards this with an ultimate goal of my husband switching careers and becoming self employed. We're hoping to make that change in the next year!

Executive Mom

Friday 4th of October 2013

2 months if we had absolutely zero income and didn't change any of our expenses. This is just liquid savings that doesn't require us to ransack our 401ks or equity in our house. We could obviously last longer if only one of us lost our jobs, since we are a 2-income family right now.

Regardless of all of those caveats, we are trying to rebuild the savings fund after we bought a house, had a baby (and took parental leaves), and then were hit by Hurricane Sandy in 2012.

Liquid

Friday 4th of October 2013

It's important to save even in the good times so that we can be prepared for the unexpected :-| Keeping an emergency fund around works for a lot of people, but it also depends on each household's unique situation. Luckily I have a little bit of passive income via dividends and since I live alone my expenses aren't that high. I could last for 2 years without any work income, then I'd have to sell stocks and other investments which would last me at least another 3 to 5 years, but I hope it never comes to that lol.

Jen

Thursday 3rd of October 2013

5 mo based on savings alone (kids college fund would be gone, but b/c it doubles as our emergency fund its not in a 529). Could stretch to about a yr, maybe 1.5, if consider running up our (currently no balance) credit cards and utilizing our (no balance) HELOC.

ND Chic

Thursday 3rd of October 2013

We could make it about 6 months or so without my income. I think that government employees often feel more secure about their jobs which leads them to have less of an emergency fund.