Jacob knew the moment the company announced its large scale layoffs that he would be among those losing their jobs. He had seen it coming, and over the course of several weeks had gradually cleared his work space. When he was called to the meeting he knew would be his last, his desk was clean. After ten years of long hours, missed family time and many successes, Jacob was out of job.

The U.S. added more than a million jobs in 2016 through April. The April unemployment rate was 5.0%. But these numbers belie the fluid nature of the labor market. Year to date, 250,000 people have lost their jobs to mass layoffs, according to Challenger Gray and Christmas, an outplacement firm. Among the firms cutting their work forces is Intel, the largest employer in Oregon.  In April they announced they were eliminating 12,000 jobs in the U.S. Because Oregon is their largest site, many of those lost jobs will come from here. We live not far from the Intel campus, and we know a few people who have been impacted.

In the current modest growth environment, one job is lost for every five created. Do you have a plan for a job loss in your family? In the 2012 National Financial Capabilities Study, done by the FINRA Financial Education Foundation, it was reported that 60 percent of Americans do not have three months of living expenses set aside for a rainy day. Of those making more than $75,000 per year, 35 percent didn’t have an emergency fund.

Saving in your retirement plan needs to be a high priority, but you also need to save outside the plan. The consequences of tapping into your retirement plan can be high. They include income taxes, penalties and a step backward in your progress toward your long term financial security. An emergency fund is an important part of your financial survival in the event of a job loss. Here are a few things to consider when building yours.

Can you reduce your debt? Debt is a fixed expense that you’ll pay regardless of whether you have a job. You can’t cut back here. Debt payments can quickly exhaust your savings and then drive you further into debt if you’ve lost your income. Keep debt to a minimum, preferably to just your mortgage. I have one friend whose goal is to keep her debt payments low enough that she could make them even if she had to go back to waiting tables.

Where would you cut your expenses? It’s a good idea to have a plan for where you would cut expenses if you or your partner lost their job. The loss of a job is a stressful time for everyone. If you agree ahead of time on possible cost savings, you’ll be less likely to make a difficult situation worse with an argument over where you can cut back.

How long will it take you to find a new job? If you are a technology professional, probably not long at all, but there are many careers where replacing a job could mean months out of work and possibly relocation. In the firm where I worked, it could take six weeks to bring someone in after we had offered them the position. So it could take more than three months for you start receiving a new paycheck.

How much do you need to have set aside? With your debt at a minimum, a plan for cutting your expenses, and some idea of how long it would take to find a new job, you can have more confidence in your savings goal. If you are a two income household you’ll only need to set aside enough money to cover the difference between your reduced monthly expenses and the lowest income in the relationship for the time frame you’ve planned. If you can set enough aside to survive if both of you have lost your job, give yourself a gold star.

How will you save enough? Once you’ve set your emergency savings goal, have a plan for getting there. With monthly contributions to your fund, you’ll accumulate what you need in no time. Keep your savings in an easily accessible account. Your emergency fund should not be invested in the stock market. A bank savings account or a money market mutual fund are ideal vehicles to make sure your money is there when you need it.

When talking about an emergency fund, many articles site the need to cover a home or car repair or medical expenses. It’s important to have money set aside for these too, but avoid using up your emergency fund to cover them. After all, these are relatively predictable events. The primary purpose of an emergency fund is to bridge the gap between jobs.

The loss of a job can be the catalyst for finding something new and better than you had before, but it can also be the first step toward financial ruin if you are not prepared. Building an emergency fund is essential for every household. Just as with any disaster, if you have a recovery plan you will be much better prepared to weather the storm.

Image courtesy of Naypong at FreeDigitalPhotos.net