I Just Lost My Job. When Do I Start Tapping My Emergency Fund?

In October, the U.S. unemployment rate hit 3.9%. That's by no means a dire number. But it is a small increase from September, which indicates that more people who want to be working aren't.

Now, it may be that despite a generally strong economy, you lost your job recently. Maybe your company was having financial difficulties. Or maybe it was determined that your specific role was no longer needed.

Either way, losing a job can be a huge blow. But if you have an emergency fund to tap, you can take some comfort in the fact that you won't immediately have to resort to debt to cover your basic expenses. Before you start raiding your savings account, however, you may want to see if there's money coming your way from your employer or the government.

Are you entitled to severance or other pay?

Some companies have a policy of paying severance to employees who are terminated through no fault of their own. If that's your situation, it pays to review your company's policy and see what pay you're entitled to. 

Perhaps you have a month's pay or more coming your way in a lump sum. That might make it so you're able to mostly leave your emergency fund intact.

Even if your employer doesn't offer severance, you may, under the terms of your employment contract, be entitled to get paid out on accrued time off you didn't use. Look at your employment agreement carefully and contact your benefits department if you think you're entitled to be paid for unused vacation or sick time. If you get a check in your hands in short order, you can leave your savings alone for longer.

File an unemployment claim right away

Generally, when you're terminated through no fault of your own, as opposed to being fired for cause, you're eligible to collect unemployment benefits through your state. So if you've been laid off, it pays to file a claim for unemployment right away. 

It can take some time to process an unemployment claim. So you might have to tap your emergency fund until your claim is approved and you start getting a weekly benefit.

You should also know that your weekly unemployment benefit will likely be a lot less than your regular paycheck. You may need to supplement that benefit with money you withdraw from your savings. But if, say, you normally spend $4,000 a month on essential living expenses and you're able to get $2,000 of that in unemployment benefits, it means you only have to take $2,000 out of savings.

The whole purpose of having an emergency fund is to be able to get through a financial crisis, whether it's an expensive home repair or a period of joblessness. But don't assume that your emergency fund has to be your only source of cash after losing your job. You may have access to other funds that allow you to keep your savings more intact, so that money is there for you in a future crisis.