Unemployment Happens
So You Need to Be Prepared
Unemployment spells typically last 2-5 months. But in 2011 the average spell lasted 9 months.
One month’s earnings in reserve can usually cover two months’ of unemployment. That’s because:
- Most states pay unemployment benefits equal to half your paycheck – up to a monthly maximum and a maximum number of months.
- You’ll lose benefits, like health insurance, but will tighten your belt, cut saving, and put off deferrable expenses.
A rule-of-thumb: As unemployment spells typically last 2 to 5 months, have 2 to 4 month’s pay in reserve.
One Size Doesn't Fit All
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2-earner households & households with low fixed expenses need less
- If either is unemployed you’ll typically still have the other paycheck.
- If you spend a lot on discretionary items, save a lot, or can postpone big expenses, you don’t need as large a reserve.
High-earners, single people, and workers who’ll have a hard time finding a job need more
- If you’re a high earner, unemployment benefits replace less of your earnings. That’s because benefits are capped – generally at half the wage of your state’s “average earner.”
- The longer it would take to find a job the larger reserve you need – benefits are generally limited to six months, or nine months in recessions.

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Peace of Mind
Not Just for Unemployment
Your unemployment reserve is a multi-purpose rainy day fund that can help you:
- Pay for an unexpected expense
- Lower insurance premiums by taking on a higher deductible
- Deal with a short term disability
To see how your reserve fits in with other financial goals, try Build A Better Tomorrow.
Disclaimer
The information provided on the SquaredAway website is for educational purposes only. It is not intended to provide personal financial advice.
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