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Save your vacation time to boost your emergency fund

Keep banking your vacation time by not taking too many days off from work
Keep banking your vacation time by not taking too many days off from work
Photo by Derrick Wescott

As I wrote about in my previous article, “Discover Equity to Beef Up Your Emergency Fund,” I wanted to discuss one important piece of equity that, at first glance, might not seem so powerful. This is your vacation time at work.

Each month you probably earn something like one day’s worth of vacation time. Often you will make more if you have more longevity with your company. Perhaps you also earn comp time or overtime when you work extra. It is important to recognize that this time is not simply an excuse to take a day off. It is also money!

Often, if you leave your job, your company will have to pay you for whatever time you have banked during your tenure. Several days’ worth could be worth hundreds or thousands of dollars.

I recommend that you keep a running chart of all the money you have – be it from savings accounts or equity inherent in certain possessions – that make up your emergency fund. Remember that your emergency fund is the money you need in case something bad were to happen – such as losing your job in this troubled economy. If you were to find yourself on the treacherous US job-hunting market, you may need anywhere from six to eight months to find a new job. So you will need an emergency fund that equals six to eight months of your monthly living expenses.

So why not consider your vacation time as part of this equation? After all, if you were to leave your job, you will get that money, so you should consider it a security blanket of sorts.

Take your salary and use it to figure out how much you earn per hour. Multiply this figure by the amount of hours you have banked. That’s how much hidden money you have to add to your emergency fund.

If you need, say, $10,000 for your emergency fund, your chart could be made up of all kinds of things. Here’s an example:

I NEED:  $10,000

I HAVE:   $9,000 from my retirement account
                $ 500 equity in my watch
                $ 500 from my savings account
                $10,000 TOTAL

Of course, you don’t want to use that retirement money if it can be avoided. So instead, why don’t you relieve a portion of it with your vacation time? Now your chart will look like this:

I NEED:  $10,000

I HAVE:  $7,000 from my retirement account
               $2,000 equity in my vacation time
               $ 500 equity from my watch
               $ 500 from my savings account
               $10,000 TOTAL

Now your emergency fund is in much better shape. You are now only depending on $7,000 from the retirement account, which isn’t perfect, but it’s an improvement.

If you were to put $1,000 into your savings account, you would once again be able to relieve another one of the funds that you don’t want to jeopardize. But first relieve the retirement account before the vacation time.

Of course, taking vacation time is healthy to do. But so is keeping an emergency fund! So I recommend having a good balance. Use your earned days off, but perhaps don’t use them during a month like December, when you’ll probably have plenty of holiday time off anyway.

And I also suggest taking as much time off as you want as soon as that emergency fund no longer depends on it.

I cannot stress enough just how important it is in this day and age to keep an emergency fund. At the beginning of your career, I don’t care what you’ve stuffed in this fund, as long as it’s full. As you continue to earn more money throughout your career, you must relieve the more important sources such as your retirement funds.

Always remember: time is money. Now get to work!