Does Unemployment Count as an Emergency?

Yes, that's a rhetorical question.

On December 30, 2008 I found out that I was getting laid off with the rest of my company (I work for a very small ad agency). We were simply hit by the perfect storm generated by our current economy: current clients cut way back on marketing budgets, dropping our projected billings for 2009 by over 80%; we weren't winning any new clients in the last quarter of 2008 as people were hesitating to take risks on new spending; we had a serious cash flow crunch for a few months as our receivables built up due to clients' inability to pay; we had to tap out our credit lines to make payroll and pay select vendors, who we had to string out just as our clients were doing to us; the nail in the coffin was Bank of America's refusal to extend our line of credit. Talk about feeling the effects of the recession directly.

It was disappointing but no big surprise, as we saw the writing on the wall for some time. I thought we had a few more weeks to try to get back to good cash flow, but apparently things were even worse than I thought.

The good thing is that I will be able to work on a part-time basis as my boss isn't filing bankruptcy just yet - we have ongoing projects, there is still work to be done albeit on a very limited basis, and we have opportunities still on the table. With a big new biz push and a little luck the company might be able to bounce back from the brink. So I will have enough coming in to live on as I look into other options for employment.

But even before I had worked out this retainer deal with my boss, I felt a strange sense of calm. The reason? My savings. Even though I have a relatively small amount tucked away (about $1,600 including emergency and other savings), it would be enough to get me through the next couple months after January assuming other work and/or unemployment was delayed or hard to come by. (I also have my Roth, which can technically function as an emergency fund to a certain degree from what I understand, but I'd like to consider that untouchable for now). I know I would have been panicking otherwise if this had happened back when I had $0 in savings.

So, in case you haven't yet taken it to heart: establish an emergency fund now for that unexpected emergency!

(Hopefully I won't have to tap into my savings anyway: I plan on cutting spending to the bare minimum while I use my minimal income to cover expenses during this transition period.)