For many years, my finances could not withstand such a stress test, which is akin to flying blind in the clouds. You hope everything works out OK, and if it doesn't...... oh shit. While I had money in my 401(k) and IRA, and also had available credit, these are not things you should be counting on as your safety net. And the simple reason is that if you have to cash in your IRA to pay bills, you will be tempted to do just that. And in addition to paying a 10% penalty, you no longer have a retirement account, or at least it is that much smaller.
So how do you build up a buffer of after-tax savings (which need not be in a savings account, so please, don't get extremist on me. It could be in stocks, bonds, or whatever as well)? Well, the easiest way is to stop spending so much, and while people say they "need" a new car or "need" a new cell phone or "need" cable television, these are wants more than needs. When you look at some purchase and think, "I can afford this with my current paycheck!" you have to ask yourself first, "but have I funded my stress-test yet?" as well as, "could I afford this if I lost my job?"
The mistake I made was buying stuff until I ran out of paycheck, and that was a dumb idea - particularly when you are self-employed. Buying crap until you run out of money is never a smart move, and yes, we all have choices in this.
It is funny, but frugal habits, once adopted, are hard to shake. We find that we are spending less now, even though we have more money than any other time in our lives - and the two are connected. We have friends that go out to eat every night and spend a lot of money on drinks at the bar. But quite frankly, we find we just can't bring ourselves to spending $5.50 for a beer at a bar that serves mediocre food. We can't see ourselves spending $100 a month on cable TV when it sucks. And I see no need to spend over $1000 (!!!) on a new iPhone 8, when my $99 Samsung does everything I need it to.
People do have choices. And living paycheck-to-paycheck is usually a choice for the middle-class.