Dig a well before you are thirsty

This article was published in 2015 and updated in 2020.

Do you ever get requests to connect on LinkedIn from someone in your industry you don’t know well and haven’t spoken to for ages? I used to receive these and wonder what had prompted them?

Many were genuine but sometimes I noticed that people sometimes seemed more interested in meeting up (and in my…ahem…sparkling conversation 😉 ) when they’d just lost their job and were now scrambling for another.

Reaching out and building relationships is great but you should be doing that now…before it’s an emergency. Dig a well before you are thirsty.

And its the same with saving money. Don’t wait until you have an emergency to realise the benefits of an emergency fund. Dig a well now, before you are thirsty.

For a start, everyone should have a cash emergency fund of at least 3-6m of essential spending. So if you spend £2,000 per month on basics (food, housing, utilities) you should have a £6,000 emergency fund as the bare minimum.

Where should your emergency fund be? Well it could be cash under the mattress but it’s safer in a bank. You want it in an instant access savings account at an established bank that is too big to fail. It’s not about the interest rate, you gotta be able to get your hands on it when you need it.

Once you have an emergency fund, it’s like those fire alarms that say “Break Glass In Case of Emergency”. You do not dip into it unless its a real emergency. For the avoidance of doubt, special offers on cars, holidays and soft furnishings are not an emergency. But in a real emergency, smash the glass and use the money. That’s what its there for.

Sadly, people often only realise the benefit of having an emergency fund after the emergency when it’s too late. Losing your job is an inconvenience if you have enough savings to see you through a lengthy job search. But it can be a disaster for people with no savings, no plan B, no margin of safety.

It’s always puzzled me when people talk about their shock at getting fired or made redundant.  They say things like: I never thought that it could happen to me.

It shows a lack of imagination to be unable to envisage being fired…even if things are currently going well at work.  I used to work on the assumption that I could be fired at any time.  As well as being a prudent assumption for financial planning, I used to find this strangely reassuring – if you lower your expectations far enough, reality tends to be a pleasant surprise.

It’s asking for trouble to get to a point where your employment is the only source of your identity. As adults our horizons can shrink as we become ever more specialised in our jobs.  But you are never just a lawyer or a software developer, you are a person that does that at a certain time in your life. As a child you are lots of things: A Jedi Knight, cowboy, friend, student, footballer.  And you still can be.

The damage from losing a job can be psychological as well as financial because suddenly your identity is threatened. Think of those stories of men that don’t tell anyone they’ve lost their job but continue to get up in the mornings, put on a suit and spend all day in the park sitting on a bench rather than admit to their wife that they’d lost their job.

If you get fired and it is a complete shock, then you have failed to understand how the Prison Camp works. James Altucher reminds us that our bosses hate us and its nothing personal. This is a exaggeration, no doubt, but contains an underlying truth which is that employees are costs and anyone can be fired.

In a service-based economy, the biggest overhead cost for companies is usually people. People are expensive….that is not a bad thing, it’s a sign of economic progress.  Salaried employees get sick pay, holidays, insurance etc etc.

The Man loves robots and other machines because they always work hard, they don’t they take offence or cry in the toilets when the boss shouts at them. All human economic history from the pyramids and the pharaohs onwards has human labour being replaced with automation. And we should rejoice in that…who wants to drag a ten tonne granite stone on rollers for two miles from the Nile whilst being whipped?

One of the lines that I always remembered from the book Liars Poker was that people forget that the labour market is a market.  In other words, jobs are not like personal relationships, they are just business. If you are lucky, you may be treated with loyalty and respect at work but its unwise to assume that will always be so. You wouldn’t expect the market for commodities, fashion or tech stocks to always be kind, fair and based on loyalty. So why expect that from the labour market?

The only people that should be truly surprised to be fired are those that are grossly underpaid. Think about it. By definition, if you are paid your true market value, then you are not giving rise to a big surplus for your employer.  If you are highly productive but also highly paid, you are not safe. All companies cut costs from time to time. The more you are paid, the juicier prospect you are to chief executives with cost saving targets to achieve.  The higher your salary, the more that is expected of you.

I hate to be the one that has to break it to you but no aspect of life is 100% safe. Companies exist to maximise profits and manage risk for their shareholders. Companies are not charities, despite their “we’re making the world a better placebullshit adverts. Nothing wrong with that, it would just be nice if they were honest about it.

When I got my first job out of college, I swallowed the propaganda telling us that the firm was concerned about the employees, world peace and the welfare of kittens.  There was a funny moment in one of my performance reviews when I said I’d like to go on an overseas secondment. My manager answered that I was now too expensive to do anything other than more of the same shit I was already doing in London.  I looked puzzled. How I was going to reach my full potential and flower into full bloom? My manager smiled wryly as if to say wake up and smell the coffee, bitch.

I’m not saying that money, savings or even full financial independence can protect you from all of life’s nasty surprises. Far from it. Money can provide partial protection from economic shocks….but not from a Zombie Apocalypse, illness or other act of God. But losing your job shouldn’t really count as a Black Swan event because it is a foreseeable possibility.

Consumers often run their personal finances as if losing their job was an impossibility.  They live paycheck to paycheck and there is no margin of safety in their lives.  Unfortunately, the real world is full of volatility and change which is why you need flexibility. Debt is a trap and a form of rigidity. Savings give you flexibility.

One of the problems with debt is the implicit assumption that we all have stable jobs with stable incomes.  Our parents may have had jobs for life, but these days those jobs are rare…and who wants to do the same job all their life anyway?  The average employee today has higher potential earnings than ever but also a higher expected volatility of income. That means lower personal debt capacity. So its bizarre that we now borrow more than ever before.

Here’s my advice to you if you are in employment.  Run the following thought experiment. Imagine that your boss calls you into their office. The lady from HR is there looking awkward, but this time its nothing to do with that misunderstanding at the Christmas Party.  You are being fired.

Now what would you do? Who would you call and go and see? Make a list and then call them now whilst you still have your job. Dig the well now and build the connections that will help sustain you in the future…maybe years from now. Its hard to do this partly because we are kept busy in the Prison Camp but also partly due to short-sightedness. Reaching out and building relationships (even where there is no obvious immediate payback) requires rational optimism, foresight and some work.

The same goes for your personal finances.  The best time to cut spending and get out of debt is now, while you have a job. Fix the roof whilst the sun is shining. Otherwise you are always vulnerable to new bosses, reorganisations and other passing storms.  You may like your job now but things change. Savings provide you with options.

One way to think about building your network and your social capital is to give value to others before you seek something back. The gift does not have to be a material item, it can be a genuine compliment, information or a useful introduction. Whatever. If you want to have options in the future, it makes sense to start digging the well now.

And always have an emergency fund and a back-up plan.


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11 comments

  1. Thought-provoking article. I think you’re right. You need to foster relationships when there is no obvious benefit to you. But I think you should go deeper. It not only enriches the chances you have in the worst case scenario–which it does–but also enriches you at the time.

    Networking–although the word is horrid–provides a potential safety net when things go wrong, sometimes provides you with work but can also provide you with something, even if it is not always obvious, when things are good.

    Everyone is guilt of taking things for granted. An article like this is a timely reminder to correct this when you can! Thanks.

  2. Steve · · Reply

    This is good advice. I’ve got one or two friends I don’t see that often and – truly, honestly – I keep meaning to call them up but I never quite get round to it. And I know they could help if I lost my job but it would look bad if I haven’t seen them til then. It’s not like it wouldn’t be fun to see them anyway.

    Must say the James Altucher article you linked to wound me up though. I can see he has a point. But it’s a bit too shock tactics, overblown generalisations to sit well with me. I see he implicitly has an answer to the safe withdrawal rate question – it’s 0%. Saving and investing is dead. Might as well not bother. Maybe I’m in denial but you’re not going to win me over with scare stories like that.

    1. I know what you mean Steve. James Altucher is prone to exaggerate for effect…and by his own admission is not good with money either as a saver or investor…but I still like his stuff despite that.

      1. Steve · · Reply

        Well if he admits that, I can at least admire his honesty. I shouldn’t throw the baby out with the bathwater; he clearly has some good stuff to communicate and I just need to take it with a pinch or two of salt!

  3. Interesting article. I always thought I could be fired, as I climbed the career ladder via promotions I could see those above me appearing in the firing line and disappear and as I moved up, I could see I was approaching that line. I started to save and network to prepare for it as no-one is indispensable. When it happened, I found my new job via that network of contacts and coped due to my savings. I cannot cover every issue that can happen but reducing a few helped. I didn’t keep in active contact with my network but it’s a group of individuals I can trust to help and call upon if needs must. In the same way they can call on me. Eyes and ears to search for work on job opportunities.
    FI gives you some control and reduces that fear that employers rely on to keep you complicit and working until they decide they don’t need you.

  4. John of Hampton · · Reply

    This is another really interesting article, thank you. It has always amazes me that people are surprised at losing their job. It just seems part of the overall instability in the world of work. Some time ago, I noticed that, in my career, a major change had happened approximately every 3 years (+/- 1 year). That included relocations, mergers and significant unplanned role changes. I have always reasoned that this instability could include me losing my job, and planned accordingly. Now that I have lost my job, I am fine, and will not be looking for another one…

  5. Nathan · · Reply

    Nice post, lots of interesting strands within it. So much so that I misunderstood your point on the first reading.

    In my (admittedly narrow) experience trying ascribe a rationale to loosing a job e.g. cost saving is a bit of a pointless task. It might be better to imagine your boss is a lizard who’ll throw you under a bus just to see how long a smear you leave on the road. That way should/when you find yourself out on your arse one day you won’t be beating yourself up trying to work out what you did wrong. Just “because lizard” and move on.

    I had Mr. Altucher down as a lizard too, but reading the post you linked to makes me think that perhaps I was a bit hasty. Seems to be my day for realising I missed the point.

  6. rsake · · Reply

    Hi EA, great article as usual.
    Have you ever thought about the idea that someone’s skills (rather than their job) are their security of employment? Some years ago (long before I reached FI) I was made redundant, but as I’d already built a well in the form of highly marketable skills, I had the option of several new jobs to choose from. The advantages from working to acquire marketable skills before I needed them included paying off the mortgage (when mortgages still cost you interest each month), having a sum to invest, getting a new job that paid more, and the complete lack of stress in the situation. I was lucky, but you know the old adage, “the harder you work the luckier you get”.
    Cheers
    Ric

  7. Blunt and to the point.. exactly as this message should be. I’ve been through several rounds of redundancy and every time I was always careful to avoid the ‘it wont ever me be’ mentality. Even before scorings started I had begun job hunting, cutting expenses and working out the unemployed budget. Eventually I took the leap and moved roles before the inevitable redundancy.. but I know so many ex-colleagues who were completely unprepared and/or in denial about it happening to them.

    Fortunatly I’m now in a position as a consultant where I am the product being sold and so become a source of profit rather than a cost to the company. Still; I don’t ever think I’m totally safe and am saving heavily should the fateful day come along.

    1. @EarlyRetirementGuy unfortunately, most people can’t get past this idea that you must work a conventional job in order to survive. It sounds like you were close to exiting this rat race, when you reduced costs and prepared for unemployment.

      Sadly, you just then leapt to the next role, which in time may have a similar fate. Although consulting for your company isn’t much different than consulting for yourself. Me thinks, you’ll figure this out eventually. 😉

      The only thing stopping most people from exiting the rat race is time. Fortunately, you’ll get your time back when you do exit, then you just have to work out what you’ll do with it.

      I’ve chosen to exit now, while I still have my energy. FI comes much later.

  8. I decided to do a deep dive into your blog and found this treasure. I received a life lesson in my early 20’s that no one is irreplaceable at one employer. I was a good but low paid employee. One of the married owners of the mortgage company had majorly screwed up and suddenly I became the scapegoat. The bottom line they had to let someone go to make the books work and he didn’t want his wife aka business partner to know. Shocking to me but that was a very valuable lesson for the rest of my business life. I had no real savings and had to live off a credit card for a month. That took over a year to pay off. Taught me the importance of always being friendly, networking and having at least an idea for what if scenarios. Fast forward to a different career when there was medicare induced slow down with national layoffs. My hours were cut back from 40 to 24 every paycheck. But I had been networking so I was offered several PRN positions at different hospitals. It was only a minor blip. The bottom line it is a job and the company/boss will work you as hard as you will let them. In hard times, it is not the boss that is let go, it will be an underling. Save for just in case and always network.

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