Going from unemployed to full-time consultant was a welcome reprieve. And learning I had time to receive unemployment while trying to figure it out was exactly what I needed.
I was very aggressive with my consultancy rates, making sure I am being paid my worth–and beyond.
Being out of work was scary so I wasn’t settling for just anything. The next go round would have to have more of a cushion in case things went sideways. As I now know they can. When the ink was dry on the contracts and after I made the decision to come back to the office, I had to take a moment to get a proper view of my finances and figure out what the road ahead would look like.
I didn’t want to. Because as long as I didn’t approach the ways I stayed above water while I was out of work, those things never happened.
But they did.
I borrowed from a few of my people – humbling for sure.
There was that moment when I made a pretty good penny using an upscale resale site for some of the suits and luggage I hadn’t used in years. That cold, hard cash was helpful.
And then, I borrowed from my 401(k). A lot. A whole lot. I left fumes.
At my age, this is not ideal. I should be focusing on wealth accumulation, paying down bad debt and having 1.5 times my annual salary saved. In addition, I should be aggressively putting 20% of my annual salary into my tax-advantaged accounts like my 401(k). Not taking any of it out when it’s growing and working to improve my net worth.
And when you work for a company that is contributing, taking out a loan should only be in an emergency.
Well, losing your job, being out of work for an extended time, that becomes an emergency real fast.
And there is no reason for me to feel a way about taking out the loan.
It turns out 13–20% of all 401(k) participants have an outstanding loan at a time and research shows that in a five-year time frame, 40% of all participants will borrow from the fund.
Now, things are a bit calmer. I have decent monthly income and I’ve also been able to complete some smaller one-off projects that have replenished my emergency savings fund.
So, now what?
First, I have to stop beating myself up over the loans. I often equate how prepared I am for an emergency with my self worth.
I didn’t say it made any sense. But those feelings have to go. I needed it. Thankfully it was there and now I can put it back. I didn’t buy a convertible or even a real estate investment. It was an emergency. Period.
My financial advisor told me before putting it back to make sure I have the basics squared away: six-month emergency fund.
I had a three month fund that I thought would be enough. It wasn’t. If I had six months’ worth, (just a few hundred dollars more per pay period) I would not have had to touch my 401(k) at all.
Lessons learned. Moving forward.
So, my emergency savings is replenished and this time it’s six months instead of three. I had about ten thousand on my Amex which I also leaned on when I was out of work. Nothing like using that American Express to buy essentials at the bodega. After that was paid off, we went over anything I was paying interest on, no matter how small.
And now, I am slowly but regularly and aggressively adding big chunks back into my 401(k), enough to have a bit more than I had in there in the first place. But of course, I lose the market growth that money would have earned if it was never taken out.
But I know it’s better to start over with something than to keep moving with nothing.