Yesterday, I wrote about the need for Cubicle Warriors to have a year’s worth of take home pay in the bank. From a career management perspective, these savings represent your ability to search for the right next position in your career in case of a layoff.
Most people would take one look at this advice and politely move on. Cubicle Warriors would start figuring out how to achieve this goal. Let me suggest a few ways…
Can we have some frank conversation here about money? When you want to “keep the castle,” a lot of the discussion is about money. So let me offer a few insights on what it takes to get to one year’s take home pay in the bank.
This will take longer than a year to implement.
After all, it’s tough to put in a year’s worth of take home pay in the bank and still live during the year!
Health insurance is an imperative need.
When Kate and I were laid off together, the COBRA family policy was $1,200 per month. I don’t think that is too far off for most COBRA payments, so right off the top, you need $14,400 in the bank just to cover health insurance because you were only paying a portion of this when you were working.
If you think this isn’t necessary, consider this: two days after my corporate health insurance went out, I needed to be in the emergency room. They did an MRI. The bill was close to $10,000. COBRA ended up paying it – after a $7,000 “health care discount” getting the total to just over $3,000. (And you wonder why people are ticked off at health care in this country…). With no insurance, I was on the hook for a $10k liability.
If you are contributing to a 401(k) program at work, you will not if you are laid off
Consequently, this isn’t calculated as part of your take home pay. However, needing health insurance is probably more than you are currently contributing to your 401(k), so you will still need lots of dollars.
This fund will also constitute your “emergency” fund.
Are there other ways? Yes, but each situation is different, so use these as a way to brainstorm how you can reach your goal of one year’s worth of take home pay in the bank.
One commentary on 401(k) plans as it relates to this post. Make sure you are at least contributing the minimum amount necessary to get the maximum amount of company match your plan offers. If you need to contribute 6% of your pay to get the maximum 3% company match, do so right off the top. Not only will you start to contribute to your retirement, but you will never get a 50% return on your money – tax free until withdrawal – from any other source.