Why employment security demands financial security

By Scot Herrick | Personal Finance

Mar 18

At the top of the Employment Security Hierarchy are finances. Specifically, I advocate having a year’s worth of take-home pay in the bank (confession: I don’t yet in liquid savings though I have in the past). And while a month’s pay, or three months or six months isn’t a year, it is a whole lot better than nothing.

But why have that much money in the bank?

Desperation is a killer to your job prospects

If you are unemployed and you have few or no savings, desperation takes over. Desperation is a very bad place to be at when you are looking for a job. Hiring managers can read the stress on your face. They will get that lack of confidence about life whether you think you are showing it or not. Non-verbal communication is powerful stuff.

If you want a good test of what happens when you live on unemployment and your lack of savings, try this: determine your unemployment compensation, add in whatever your liquid savings (not your IRA or 401(k)!), and then start living on that amount of money. Temporarily bank your paycheck into an different account. Live as if you had no job.

When you have a job, it’s a great time to try that approach — you get all the benefit of figuring out what really would happen if you lost your job tomorrow. Without losing your job.

But you will get stressed, trust me. And that’s what you want to feel so that you understand what happens when you don’t have your finances right.

Financial security gives you the ability to choose

There is incredible power in the ability to choose which job you want to take. If you have the job skills, performance, networking, and ability to interview well, you’ll get offered jobs. Without the financial backing, though, the jobs you get offered might not be the ones you want to take.

Without a job, all of a sudden that job with an hour-long commute one-way starts to look pretty good even though it will destroy your family/exercise/hobby/social time that you used without the two-hours taken from your day.

All of a sudden, that 10% pay cut looks not quite so bad if you can strip away every optional dollar out of your budget — and destroy your ability to live for something other than your job.

Having the money in the bank gives you the incredible power to say: “No, this job isn’t right for me; I’ll pass on this offer.”

A poor job starts you on a downward path

Without that ability to say no, you probably take a job that isn’t right for you — either in the way you live with your family or the job itself. Over time, that decision starts to not only cost you on the current job, but it starts to impact your ability to get other positions to get out of the ugly place you’re living.

Poor job fit means poor performance reviews. It means a boss who you may not get along with well. It means not getting the tasks that use your strengths that you can use to get great business results. It means low or no raises, low or no bonuses, and little ability to get a promotion — because your business results just don’t cut it.

In the meantime, all those personal lifestyle pieces that were yours start getting eaten away. Relationships with your family, your friends, and your social circles all suffer. And breaking those pieces take away your key emotional support structures you’ve used in the past to get through a crisis.

Desperation is a bad place

Not everyone goes down the Dark Side, of course. But it takes a lot more strength, determination, and a little bit of luck to overcome the financial insecurity that happens with losing and then finding another job.

Financial strength is what allows you to have the patience to take the right job, not any job. It’s the crowning piece of the puzzle that gives you employment — not job — security.