Emergency Fund Hierarchy
The modern American workplace is a sort of artificial environment where almost no one would appear if they weren’t absolutely compelled to do so by their need for income. Long gone are the days where a family would build a homestead and support themselves indefinitely through farming, raising animals, barter, and income from occasional work in trades such as butcher, carpenter, mason, laborer, and shopkeeper. If you were to choose any random office building or corporate fulfillment distribution center in the US and suddenly give each of the workers a million dollars, all but a tiny few of them would immediately pour out of the building in their droves, never to return.
I recently read a horrifying statistic that over two thirds of Americans have less than $1,000 saved in an emergency fund. This translates into an enormous swath of the population having zero bargaining power in the already inherently imbalanced employer/employee relationship. Like in Aesop’s fable of “The Hare and the Hound”, much more is at stake for the employee than for the employer. This sort of environment invites employee mistreatment, both legal and illegal.
When employees have so few options, they often remain in jobs they dislike and are sometimes forced put up with chronic mistreatment and poor management. Universal basic income could allow working Americans an enhanced level of dignity – the ability to quit a job and indefinitely afford at least food and shelter. Stripped of the ability to directly threaten an employee’s livelihood, inefficient employers would be compelled to provide better working conditions or face an employee exodus.
Today’s workers’ level of confidence, comfort, and well-being in a particular job is inversely proportional to their immediate need for income. Financial expert Suze Orman encourages people to have at least eight to twelve months of living expenses saved in an emergency fund. I agree – the more money saved, the better – not just for survival purposes in case of a job loss but just as much for maintaining your confidence level every day in the workplace. I bet Ms. Orman has a lot more than 12 months of living expenses saved! The longer you can live comfortably on your emergency fund, the more confidence and bargaining power you’ll have in the workplace.
My purpose for writing this article is to propose a hierarchy of workplace emotional confidence based on the urgency of employees’ need for income. Of course there are other factors which determine one’s level of confidence, such as marketable skills and experience, and the extent to which employees enjoy their jobs. But this hierarchy is intended to reinforce the encouragement to build as large an emergency fund as possible – for both reactive and proactive reasons.
Keep in mind, “living comfortably” does not entail dipping into your retirement savings – which should be surrounded by an inviolable boundary. As the character Denethor explains in the movie The Lord of the Rings, your retirement funds are “to be kept safe, hidden dark and deep in the vaults, not to be used unless at the uttermost end of need.”
Below I present four modes of confidence based on how long people can maintain their current lifestyle living solely on their emergency funds.
God Mode
Some “first person shooter” video games allow you to type in a secret cheat code which causes your character to enter “God mode”. In this state, you are immediately granted all the best weapons and you become totally impervious to injury by bad guys, monsters, or other players. In God mode, your character is free to roam the video game world omnipotently and dominate every level with no risk and relative ease.
In most medium and large corporations, at least some of the people who work there are in God mode. They effectively already have enough personal wealth that they could quit their jobs at any time and never need to work again. Imagine the level of confidence they bring to work every day. They’re able to take risks that normal people can’t afford. With little fear of the consequences of being fired, their day to day enjoyment of their jobs (as well as their bargaining position) is infinitely higher than for the average employee. They operate autonomously and do and say (mostly) what they damn well please. There’s no such thing as “late to work” for someone in God mode. Employees in God mode truly *choose* to be at work. I once heard about a big tech company which had a special name for employees with millions of dollars of vested stock options. They called them “industrial volunteers”.
The biggest risk God mode employees face is losing their job and becoming “just another rich person”. Temporarily out work, they lose the large daily dose of authority and deference to which they were accustomed, not unlike what happens to a retired general in the military.
Do you know of any people where you work who are in God mode? How confident and self-assured are they? Do they seem to have much fear of losing their positions? Who would dare threaten them?
Now why would an employer knowingly hire people with so little fear and so much leverage compared to other candidates? They hire them and compensate them handsomely precisely because they know these types of people truly want the job for its own sake and don’t *need* the money. The utter absence of desperation is extremely attractive in every area of life. Nothing succeeds like success!
Values Mode
People in Values mode can comfortably survive two to four years or more without working before they burn off all their non-retirement cash reserves. Many of these folks are steadily working on achieving God mode and if they were to lose their job, it would slow down their progress in that direction. Because of their high level of confidence, they’re high performers and don’t take poor treatment from anybody. Just a look from one of these people will tell you they mean business and have options. Employers fear to threaten people in Values mode. How can you threaten someone’s job who can live multiple years without pay? Values folks will either quit immediately or plan a strategic exit.
This mode is called “Values mode” because these people have the necessary financial leeway to allow their career to align with their personal moral values. They can easily quit jobs when their values don’t align with those of the company or the management. Money does not need to be their main driving focus. They can concentrate on doing work which motivates them and benefits society.
Some people in Values mode, rather than continue to scale the corporate ladder, employ their values to shift careers to areas which give them more joy and allow them to be more creative. These people are easily able to take unpaid sabbaticals to retrain themselves, gain some competitive advantage, or just for their own edification. They have the option of starting over completely by going back to school for a new degree or starting a new business. Other Values mode folks down-shift to a life of part-time or consulting work to begin a “retirement before their retirement”.
These folks have a long runway available for reconsidering their career choices and making any moves or adjustments which resonate with their values. They’re able to take significant risks which may reap great rewards.
Maintenance Mode
Maintenance mode represents people who can live about a year on their cash savings. When faced with a job loss, these folks will have to immediately adopt significant austerity measures to ensure they don’t run out of cash before they get a new job. They’ll have to greatly reduce extraneous expenses and stick closely to a budget. With a year of leeway, these folks do have the opportunity to shift careers or start a new business, but do so at significantly greater risk than folks in the higher modes.
If someone in Maintenance mode is in a career for which there’s a lot of demand, like IT or accounting, or a lucrative trade like electrician or plumber, they will often feel quite comfortable and confident in their job. In fact, these people and those in the upper groups receive occasional job offers from other employers. This group of Maintenance mode folks isn’t too worried about losing their jobs. They’ve come to the conclusion, similar to that of the character of the Architect in the movie The Matrix Reloaded, that “There are levels of survival we are prepared to accept.”
However, quite a few people in this mode have a unique set of skills that may only pertain to their current employer or industry and aren’t easily transferable to other in-demand sectors. I’ve known people like this who had received high salaries in their previous jobs who were out of work a year or more after they lost their job. They weren’t easily able to find a new job because their specific niche either wasn’t widely available or didn’t provide near the compensation of their previous job. These folks often experience regular emotional stress at work because they know they’re at a great disadvantage in negotiation with their employer. Even their authority over their direct reports is tentative because they can ill afford employee confrontations which might reflect poorly on them.
Folks in Maintenance mode will want to regularly keep their eye out for other job opportunities if they’re not satisfied with their current job. These folks can also prepare for new careers or conduct a “side hustle” while they’re not at their full time jobs. A year of income saved is respectable, but significantly more would be better.
Panic Mode
Folks in Panic mode have less than six months of funds saved – often much less. In the event of a job loss, they should immediately begin looking for both temp work and a replacement full time job. One hundred percent of their time should be spent looking for a new source of income. Sometimes it can take a couple of months to find even a low-paying job and Panic mode folks have no time to spare.
Folks in this group must often turn to relatives for help if they don’t already live with someone who can support them when they’re out of work. In addition to unemployment benefits, it may be wise for them to sign up for SNAP or other such social relief programs. Homeowners in this group should call their lender and request a forbearance to defer their mortgage as long as possible.
These folks’ work days are usually spent putting up with hassles from their bosses, coworkers, and customers, sometimes working unreasonable and unpredictable schedules. They can’t afford to lose their job and have almost no bargaining power. Few people in this group enjoy their work and many dread going to work every day.
The emotional stress that accompanies Panic mode damages one’s health and destroys self-confidence. These folks live paycheck to paycheck and experience difficulty paying rent, car payments, and credit card debt – often leading to the accumulation of even more debt. To make matters worse, a job loss can damage their relationship with a domestic partner and other family members.
Sadly, people in Panic mode are one step from having their lives turned upside down. However, they are not doomed; they do have options if they act prudently and carefully. The road to employment and eventual success is rocky, shaky, and uncertain and requires a mettle that most in this group never muster.
Conclusion
If you’re a young person just beginning your career, I’d advise you to continue living with relatives (if that’s an option) as long as it takes to build up a year or two of living expenses saved in an emergency fund. That way, when you do move out on your own, you’ll be able to enter the workforce with enhanced confidence and bargaining power. If you decide you’d like to live with a domestic partner, you’ll have to make sure your emergency fund can support both of you. You might consider looking askance at potential domestic partners who aren’t bringing emergency funds to the table.
If you’re already mid-career and don’t have significant savings, I urge you to pare down every possible expense in favor of saving, saving, saving until you have a sizable emergency fund. Read Aesop’s fable of the “Ant and the Grasshopper”. You might have to suffer a few lean holiday seasons to get there, but it’s worth it. Remember, almost every day is like Christmas in the top modes when you’ve replaced financial anxiety with financial security.
