What’s Your Backup Plan?

An original post from Money Is Not Important

If you’ve ever read a personal finance book, you’ve undoubtedly learned that it is important to have a cash reserve in case of emergencies. Some experts argue that you should have at least three months of living expenses saved up, while others argue that you should have as much as a year’s worth. In light of recent economical events, I’m sure most people would like to have at least six months in reserves.

These funds should not be invested. Rather, they are to be set aside in an interest bearing bank deposit account so you don’t have to worry about market flucuations. You will defeat the purpose if you have your cash reserves invested in the stock market, experience a sharp decline, and then wind up out of a job. It’s like going rockclimbing without safety ropes.

So now that we have that “Personal Finance 101” lesson out of the way, I want to talk about something that is much more important, but much less discussed.

What is your backup plan for your career?

Sure, having $15,000 in the bank is a nice cushion. But why are personal finance experts focused on this instead of having a backup for your job itself? Your career is your most valuable asset, hands down. You would think that it’s your house or 401(k). However, there’s no denying the fact that your ability to earn an income is what ultimately makes the difference in your financial situation. If you didn’t have the ability to go out and earn a paycheck, you would never have the house or the 401(k) to begin with.

Once your $15,000 cushion is gone, it’s gone. The skills you have that give you the ability to make money last a lifetime, and just like an investment portfolio, it pays to be diversified.

Let’s say you have a job making widgets. You’re the most sought after widget craftsman in all the land. People come from miles around to buy your widgets, and life is good. But what happens if widgets become obsolete, or some blogger sitting in a San Francisco coffee shop decides that your widgets aren’t cool anymore? All of the sudden, your once valuable skill of widget-making no longer gives you the ability to earn a living. You’re were a one-trick pony, and it has cost you dearly.

But, what if you aren’t a one-trick pony? Let’s say you became extremely efficient at making widgets, and you found yourself with a lot of extra time on your hands. Instead of sitting around counting your profits, you decided to learn about sprockets. Sprockets have nothing to do with widgets, but they spark your interest and give you something to do when you’re tired of making widgets. It started out as something that you did in your spare time, but after a few months, you discovered that you were pretty good at making sprockets.

Now, let’s go back to the scene where widgets are no longer desirable. Life seems to have taken a turn for the worst, but then you realize that hope is not lost! There’s a niche market for sprockets, and you already know how to make them. While your widget competitors are going back to school to get their MBAs, you set off to build up your sprocket company.

Now, obviously this is a simplified example, but the point is that you want to have something to fall back on. You might love your job today, but what if your company gets acquired and you can’t stand the way things are run by the new management? Or, what if something happens that doesn’t allow you to perform your job the way you used to? You want to expand your skillset within the realm of the field you currently work in, but also consider learning something completely outside of what you normally do at work. For example, I work at a large financial firm, but I dabble in web design and development on the side. You need to find a side hussle, and be prepared to make it your career if you must.

I’d love it if you would leave a comment. Tell us, what’s your backup plan?