There were several rounds of lay off going through the America-based company I am working at. This is because our major clients are hit by the slump in commodities prices. At the same time, there has been an emphasis at controlling costs and so there is the usual reorganisation and where work that can be sent to be done in lower-cost countries are being sent that way. As a result, about 8 people were retrenched in the past two months.
Fortunately, I was not laid off this time, although the spectre does loom. But if I did get laid off, I would be in some trouble. Firstly, I do no have an emergency fund built up. While I have no mortgage to pay off as I am not yet married, if my parents were to suddenly fall ill, my finances will be strained tremendously. Plans for marriage would also have to be scaled down, if not postponed till I find a new job. I would also be in deep human waste if I were already married and had to pay the mortgage.
Bad things tend to happen together. As you are aware, I am fully exposed to stocks. If I were to liquidate my stock holdings to be used as funds, I will be in the red. Retrenchment exercises tend to occur around the same time the stock market slumps.
Therefore, do no underestimate the importance of having emergency funds. Conventional wisdom suggests that they should be 6-12 times your monthly liabilities. These include your normal living expenses, mortgage instalments and even some creature comforts. The reason is that you do not want to be at your wits' end when you are unemployed as this will add on to your emotional stress. Also, having an emergency fund to draw from allows you cushion to seek for a new job, which again may take some time as employment conditions will be bad.