Investment Strategies: How Can I Structure A Job Loss Emergency Fund?

A colleague asked,

I want to set aside an emergency fund purely to handle any loss of employment situation that I might face. What would you recommend?

Here’s what I recommend:

  • First, estimate your monthly expenses (including EMIs, monthly savings for annual expenses, and routine household expenses). Let’s say this amount is M.
  • Structure a 6-month fixed deposit ladder (i.e. one fixed deposit each month for six months with each fixed deposit maturing in six months). Each fixed deposit should have it’s face value equal to M.

Now suppose you do lose your job. You only need to wait for that fixed deposit with the nearest maturity date to mature, close it, and use the proceeds for your monthly expenses. Of course, once you’re back in a job, you will need to put the ladder back in place. I also believe that the interest you earn will more or less account for any inflation, but when you don’t have a job, concerns about inflation should be the last thing on your mind. What should be on your mind, however, is frugality.

How does this strategy sound?

3 thoughts on “Investment Strategies: How Can I Structure A Job Loss Emergency Fund?

  1. This strategy is a pretty efficient one, I heeded your advise long time ago when you spoke to me about CD ladders and I followed and opened around 5 ladders for a period of 6 months,each one maturing within 1 month of the other, though I was still not out of job 2008 to 2009 was an uncertain period and I was not sure if I would stick on with my job or lose it, these ladders were a very efficient in a way because I got the interest rates in dollars, which I withdrew and placed them in RD in India :-):-)

  2. Hi Vinaya,

    CD Ladder idea sounds good. The same can be achieved via Auto Sweep Account facility most banks provide. For e.g. ICICI provides the same and there is no penalty for breaking the FD in between. Just sharing my views.



  3. @Atul:

    That’s a good equivalent too. But do you get a break-up of what’s in your savings account and what’s been swept-in into a FD when you get the account statement? And can you also see this real-time with online access?

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