Looking out for myself [Preparing for the worst]
I was chatting with a coworker today about our current contract and our prospects once the contract ends in March.
My coworker said something interesting. Basically she told me I should just look out for myself. While we’re both happy with how our company has treated us, we can’t rely on its good graces if they just don’t have another contract for us if this one ends. I’ve been lucky that I was “placed on the bench” (paid to not work) twice during my 2.5 years with the company, but that was because they were waiting for a security clearance to complete or contract to start both times.
And while I’m a federal contractor and the government is always spending money, I can’t expect that we’ll continue to win contracts that fit my skills.
Since I’m the main breadwinner in our household (i.e. we can live on just my salary, but not on Stacie’s), I need to have a fallback plan. “Most experts” (who are these experts?) say you should have 3-6 months of basic expenses in your savings account to hold you over while you search for a new job. That means I would need $15,000-$30,000 in savings, depending on what I consider a “basic expense” and whether I have 3 or 6 months in savings.
Right now, we have about $20,000 in cash savings, so we’re above the minimum already. But now I have to consider something else. I’m just thinking about my own job loss, but Stacie would still have a job. There’s a pretty low chance that we would both lose our jobs at the same time since we’re in different industries (federal contracting vs healthcare) and the DC job market is still relatively strong (again thanks to the government).
Stacie’s take-home pay would cover our mortgage, and my website income would cover most of our remaining bills, so we would barely dip into savings. So I’m at the crossroads of deciding whether we should bump up our emergency fund or pay down debt further. Just a few years ago, I was a bachelor with about $100 in the bank and nary a thought about my financial stability if I lost my job. But now I’m a married homeowner who has more than his own well-being to consider. I’m sure if I asked Stacie right now, she would say “SAVE SAVE SAVE!!!”, but that’s just her personality (which I’m thankful for).
The one problem with trying to use logic to determine whether to save in case of emergency versus pay down debt is twofold:
1. “Emergencies” are risks, and the probability of the risk occurring is mainly an educated guess at best (regardless of how much math I do to calculate it, there’s always unknowns in the equation).
2. It’s hard to quantify “safety”. While I can calculate the amount I would pay in interest on the debt I don’t pay off, and I can quantify the amount of interest I would earn on savings, I can’t calculate the benefit of having a bigger emergency fund…unless the emergency happened and I didn’t have that fund.
So while I battle logic and emotion, I’d like to hear your thoughts on building up our emergency fund versus paying down debt. Let me know what you think in the comments!