Abu Dhabi, UAEWednesday 19 June 2019

Are you financially ready to get fired?

Through no fault of your own you could find yourself without an income for weeks or months at a time

Building up an emergency fund that can cover three to six months of expenses gives you more options. Photo: Getty Images
Building up an emergency fund that can cover three to six months of expenses gives you more options. Photo: Getty Images

People lose their jobs and income. It happens and it could happen to you. In the US, where I am from, the government was shut down for the better part of a month, leaving many employees without several pay cheques. This was an awful situation in a country where 40 per cent of adults cannot cover a $400 emergency. Not getting paid for a month is a lot more than that $400 emergency fund.

I sympathise, of course I do. Through no fault of their own, millions of people suddenly had no income for a sustained period of time. I'm sure many of were stressed about where the next mortgage payment would come from or how they would fund their desperately needed medication. I wonder how many families will end up homeless because of this interruption to their income stream?

Personally, I keep seven months of expenses in cash, and I’m going to expand that to eight soon.

Zach Holz

And this could happen to you too. Again, through no fault of your own, you could find yourself without income for weeks or months at a time. Economies and businesses shrink, jobs end and unexpected illnesses or injuries occur. But, as with so many things, whether you come out the other side of a job loss or emergency in decent financial shape comes down to preparation and planning.

To do this you have to be willing to grapple with some difficult topics, but the potential downside of not being ready for any eventuality could be far more ruinous that a few minutes of discomfort. If it helps, put on your comfiest pyjamas, light a nice candle and write your plan down in a pretty journal. Make the process positive so that you can work through the stress of dealing with an uncertain future.

The first step to being prepared for losing your job is to have three to six months of expenses saved up in cash. To achieve this, you need to know how much you spend per month. A tracker app like Spending Tracker (which is free on iOS and Android) will detail your monthly expenses. Then, figure out how much you need to save and reduce your expenses to ensure you can cover three to six months of expenses or the cost of relocation or both.

If you’re in a field where jobs are plentiful, you can probably get away with having closer to three months stored up, but if your sector is more specialised aim for at least six months. Personally, I keep seven months of expenses in cash, and I’m going to expand that to eight soon.

Do not rely on having a UAE credit card because your account can be quickly closed if the bank finds out you no longer have a job. Also, make sure you are not in debt in the UAE, because that could make it illegal to leave the country or return. Check and see what you could realistically sell your car for, and if that is less than you owe on your car loan, figure out how to pay the difference.

Another thing to help you sleep at night might be researching and purchasing critical illness insurance, which can guarantee a level of income in the event of a life-changing diagnosis. Make sure you find a product that is right for you.

The last thing to consider is that most UAE residents can move to another country if everything goes wrong. Personally, if my job ends for any reason, I plan on heading to South East Asia so that my emergency fund lasts longer. This is the concept of geographic arbitrage, where you go to a cheaper place to make your cost of living lower. Three months of expenses in the UAE can stretch out to six or seven in Thailand, if you live frugally.

I realise all of this can be unpleasant to think about, as it is hard to contemplate an uncertain future. But the benefits of being as prepared as possible are also very rewarding. If you get your financial house in order, it gives you the freedom to escape a bad situation and not be trapped. This doesn’t only apply to being fired, but also if you are simply fed up with your job and want to try something else. With a good plan in place, you will be ready to take advantage of new opportunities without worrying if you’ll have to eat cat food to survive

Dubai schoolteacher Zach Holz (@HappiestTeach) documents his journey towards financial independence on his personal finance blog The Happiest Teacher

Updated: March 7, 2019 03:54 PM

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