I recently revisited my long-term goals and life plans, something I do a few times a year, and I realized that I had never seen a financial and career contingency plan quite like the one I follow. That made me think, maybe I should share it. So here it is.
The Short of It
I read, and re-read this post a few times and found that it wasn’t saying exactly what I wanted to say, or at least not if you started reading and gave up. So I decided to summarize it all at the start, and if you want learn more go on. If not, hopefully this next paragraph or two will give you what you wanted.
Summary
Basically my blog is about needing not only an emergency fund, but also about needing two plans (2), yes two plans for what to do in case you lose your income sources.
First thing I talk about is having a fund, if you don’t have one, you should start building one now.
Then I talk about the first plan you need to have, which is just what to do as your fund is depleted with specific triggers based on the level of funds you have left, rather than time.
And lastly I talk about the second plan you need to have, which is what triggers you have in place and what to do when they are met with regards to getting back your income source (your job search).
I wrote this because I hadn’t seen anyone talk about two different plans, only ever one. And if you want to read more, have at it.
The Long of It
I don’t like talking about money that much, and I definitely don’t like telling people how to manage theirs. I’m in my mid-40s now, and while I’m not a financial expert, I’ve been through enough ups and downs to know that having an emergency fund isn’t optional.
But here’s the thing, having an emergency fund is only half the equation. You also need a plan for what to do if you ever have to start using it.
Income Sources Aren’t Always Jobs
I don’t like equating jobs to income sources because not everyone relies on a traditional job. If you’re retired and live off rental income, what happens if your properties sit vacant? If you’re in the FIRE movement and live off investments, what happens if the market crashes? If you rely on Social Security, what if it gets delayed?
No matter how you make a living, you need to be prepared. And that’s why I believe everyone needs first, an emergency fund, and second two plans:
- A plan to restore income (whether through a job or another means)
- A plan to adjust financial decisions as funds deplete
Note: I’ll probably use the terms career and income source and job interchangeably. But they all basically just mean that you get money from somewhere
What Is an Emergency Fund?
First, let’s talk about what an emergency fund actually is. For me, it’s simple: it’s liquid cash in a savings account that exists solely to cover expenses if you lose your income. The amount you need depends on your personal situation, but the key is to determine your absolute bare-minimum monthly expenses (your monthly nut), things like rent or mortgage, food, utilities, and anything essential to securing new income.
Multiply that number by however many months you want to cover, three, six, twelve, whatever makes you feel secure and put that into the savings account. The point is, this fund should let you sleep at night without resorting to credit cards or panic-selling assets if you suddenly lose your income.
But here’s the real question, what do you do when you actually need to start using it?
The Problem with Traditional Emergency Fund Plans
Most advice online follows a simple timeline:
- Month 1: Aggressively job hunt
- Month 2: Keep looking
- Month 3: Get a part-time job
- Month 4: Cut more expenses
- Month 5: Start selling assets
- Month 6: Move or downsize
This isn’t necessarily wrong, but it doesn’t account for real-world complexities. Maybe only one person in your household lost a job, so the fund is depleting more slowly. The outline above doesn’t say anything about what to do then. Maybe you’re in an industry with long hiring cycles, so even aggressive job hunting might take months before it pays off.
There’s an even bigger problem with the approach above. It assumes that your job search and the amount of money you have in your emergency fund are somehow directly related to one another. They aren’t. If you’re emergency fund will only last 3 months, and your job search might take more than that, then you have a problem. Or, lets say your emergency fund will actually last you two years, but your job search is really only going to take a few months. First congratulatins that’s great, and second, why do you behave the same at the end of month one as someone who’s fund will only last one month.
I made the two plan approach because I saw that these two things were distinct. What we do with our money if losing our sources of income, isn’t the same as what we do about our career or job in order to regain an income source.
That’s why a single, linear plan doesn’t work for everyone (or at least not me). Instead, you need a flexible approach that considers both financial depletion and income restoration in separate but connected strategies.
The Dual-Plan Approach
Why Two Plans
As you’ll read below, when you learn more about the plans, what’s true about having to dip into your emergency fund because of a loss of income is that it sucks and it can lead to bad and or emotional decisions. What’s more, most of the advice out there is to give yourself timelines, like if you don’t get another job in 2 months do x or y, and then in 4 months, do a or z. And that’s well and good, but not everyone spends money at the same rate. Your emergency fund may be the same exact amount as mine, but if I spend it faster, I won’t have the same 3 months to take action you will. I’ll have to take action sooner.
What’s more is that the actions you take based on how much money you have left in your fund, aren’t necessarily the same actions you’d take based on how your job search (renters search) is going. As the money in your fund depletes, you’ll have to make “Financial” decisions about what to do with the remaining money like, cancel your cable, stop donating for a while, skip Starbucks, etc. But how that impacts your job search for example isn’t directly correlated to that.
Sure, if you really need the money it means you have to get any job faster. But you can still be measured about your life / career / goals at the same time. For example, if you lost renters and that was your primary income source, you’ll probably start dipping into the fund and if you have a financial contingency plan that you follow, while you still have 80% of your money still there, you’ve decided that you don’t yet need to go get a side job. However, the actions you take to try and regain your income source (renters) are different and tied more to time. First month without renters you deep clean the house, take new pictures and reach out to friends and family to see if they know anyone.
The level of emergency funds you have isn’t directly tied to the amount of time you are without that income. And that’s why I have two plans.
Financial Contingency Plan
The “Financial Contingency Plan” is very simply what you’re going to do as you start to deplete the money in your emergency fund. As you have to spend that money for bills, etc, that should drive your financial decisions.
The sample plan below is based on how much of your emergency fund is left, with actions triggered at 20% depletion intervals. Though you can do whatever you want at different intervals. You can have more intervals or less intervals, it’s your plan.
| Emergency Fund Depletion | Financial Actions |
|---|---|
| 0-20% | Maintain normal spending, make minor discretionary cuts. |
| 21-40% | Reduce discretionary spending, pause unnecessary expenses. |
| 41-60% | Sell non-essential assets, consider part-time work. |
| 61-80% | Downsize living expenses, sell high-value assets if needed. |
| 81-100% | Prepare for drastic changes, consider relocating or major lifestyle adjustments. |
Key Benefits / Tips:
- If only one spouse loses their job, depletion may be slower, allowing for a longer decision timeline.
- Avoid major asset liquidation too early unless depletion accelerates significantly.
- Prioritize maintaining liquidity and access to credit in later stages.
Personal Note: I actually have seven levels in my plan, each with different actions to take. And also, I am very risk averse so I start major cuts to spending in the very first level.
Career Contingency Plan
The “Career Contingency Plan” is the plan of action you’ll take as time passes with regards to having lost your income source. Or, more specifically, if you have to tap into your emergency fund, you’re probably gonna need to put this plan into effect. I call it “Career Contingency Plan”, but it’s really the “Income Loss Contingency Plan”.
If you’ve lost your income, what are you gonna do to get it back. Or at least, get back to something where you aren’t needing to deplete your fund any longer. If your income was rental income, whats your plan for getting renters? At which point of vacancy will you start to get a side job? How long before you actually just try and sell the home?
This plan is based on time unemployed, adjusting career strategies based on how long you’ve been without income. Again though, it’s not only for income from a job. And what’s more, is you can adjust the measure from months to weeks, or even from months to quarters. Or simply adjust the number of months.
| Unemployment Duration | Career Actions |
| 0-3 months | Begin job search immediately, leverage network, update resume. |
| 4-6 months | Expand job search to different industries, consider contract work. |
| 7-12 months | Seek alternative income sources, explore retraining or certifications. |
| 12+ months | Consider relocation, career pivot, or starting a business. |
Key Benefits:
- Make smart decisions based on your career plans. Sure if you need to get a side job you can, but you can also be measured and honest about your current career and prospects. For example, if you have been looking for 9 months and have no prospects, maybe it’s time to shift careers, take some training for a new career, or maybe pick up a trade. Maybe you’ll have to accept a pay cut for a time in order to start that.
- Compartmentalize your income source action plans from your financial ones. Of course there is some dependency, but with a separate income source plan, you are able to be less emotional about your decisions and more practical. If you have to switch careers, you just have to.
Personal Note: Here too, I have several more levels of action. And also, I am more aggressively seeking alternative sources of income early on.
These Plans are Parallel
You might be asking right now how is it that these two plans interact with one another (got some great feedback about adding a section like this from someone). My best answer to this is that they don’t. That might be a bit confusing, but it’s true.
Maybe I should set a few ground rules first. Let’s assume for the moment you work in the food services industry, maybe you’re a line cook. You’re dream is to be a head chef on your way to opening your own restaurant.
Now, you’ve got an emergency fund that you expect could last you three months given your current financial situation. So you make a plan around that, a financial plan. Separately, you have a career plan that puts you on a path to your dream, your career plan. These two plans are different and they don’t affect one another, or at least they shouldn’t.
Let’s make a quick and dirty and simplistic two plan strategy for this hypothetical situation. Let’s assume that this future chef has 3 months of emergency funds that is slightly forgiving that is, it covers essentials and a little more, like some lifestyle choices. Also the future chef knows that for the most part he can find work pretty easily given his experience and location.
Financial Plan:
- 0% – 20% depletion
- Cut non essential costs immediately, but don’t freak out, I planned for some non essentials.
- 21% – 50%
- Start cutting non essentials, including lifestyle choices.
- Let landlord know that I lost job, maybe they’ll work with me till I recover income.
- 51% – 75%
- Make drastic cuts, consider using credit, prepare for alternative living arrangements.
- Look for a part time job, regardless of Career Plan, I need some income.
Notice that in the last stage I included above, that I included a “look for part time job”. Now you’re wondering, hey that seems career specific. Nope, it isn’t. That’s financial necessity specific.
Watch, here’s the future Chef’s career plan.
Career Plan:
- 0 – 1 month
- Relax, being a chef is hard work, start my job hunt by being a bit picky about the places I’d like to work and look for roles a step up.
- 1 – 2 months
- Let’s pick up the search, reach out to former colleagues
- 2 – 3 months
- Broaden the search a bit to include line positions as a cook I wouldn’t have taken otherwise.
- Based on Financial Plan and depletion levels, consider part time jobs in my existing role if they exist.
- 3 + months
- Consider career change as the food service industry is collapsing due to another pandemic
- Start community college course in plumbing and look for helper jobs where i can apprentice
As you can see, these are two separate plans. They might have some overlap, but how what you do with regards to your money is different than what you do with regards to your career plan.
This is a super simplistic plan, but hopefully it makes the point of why two plans are essential and how the two work to help you in the unfortunate circumstance of income loss.
Implementation Strategy
Now, this part feels weird to do, but, write this plan down. It doesn’t have to be on paper, but it does need to exist somewhere you can reference easily when needed. I know, I know, it seems like such an adult thing to do, but this is important.
Don’t skip this step. A plan isn’t really a plan if it’s only in your head. Write it down, review it, confirm it makes sense, and then forget about it until you need it or every few months when you check in and update it based on your new situation.
When to Stop?
Ultimately, this is personal, but for me, it’s simple—if I had to use my emergency fund, I stop withdrawing from it once I have another steady income source. And that the income source is sufficient to cover the basic expenses we calculated above (your monthly nut).
Refill the Fund
Once you’re back on your feet, rebuild your emergency fund. Maybe you’ve learned to live on less, and that’s fine, but still get the fund back to a level you’re comfortable with, and, of course, update your plan accordingly.
Additional Tips:
- Budget: If you don’t have a budget… you should. Nuff said.
- Regular Monitoring: If the unfortunate happens, be on top of the fund depletion levels and unemployment duration. You’ll need this data to know when to trigger different actions based on your plans.
- Predefined Triggers: Stick to decision points to avoid emotional decision-making.
- Business & Freelance Options: Explore income diversification early, like before losing your income source, to extend your financial runway. I don’t do this well myself, so it’s easy to say, but others do it better. Some people have more hustle than others.
Conclusion
For me, this works. Maybe it doesn’t for you. But if nothing else, at least have some money saved. Build an emergency fund and don’t touch it unless you absolutely need to. And, if what I said above is too much, make a simple plan. But some plan is better than no plan. Times change, things happen, be prepared, for yourself and your family.