Job Loss: Got a Financial Game Plan?
According to the Bureau of Labor Statistics, the number of unemployed was 15.4 million and the jobless rate was 10 percent in November. While those numbers “edged down” from previous months, there’s no doubt that job loss and unemployment are hot topics, and people are worried.
Even if your income has remained unaffected, hearing stories on the news and witnessing friends and family members experience job loss can make a person nervous. It’s why car dealerships and travel companies are offering job loss insurance, reassuring consumers that it’s okay to buy a new car or book a cruise.
But wiggling out of a major purchase means little if you still can’t afford to pay your mortgage after job loss.
Worst-case scenario planning
This made me think about what my financial situation would look like if I lost my job, if my husband lost his, or if somehow we both found ourselves unemployed. What is our worst-case scenario? Could we cover the essential bills? And for how long?
This is the process I used to create a worst-case scenario snapshot of our finances. I’ll use fictional couple Michael and Kay as an example. Their combined monthly income after taxes is $5,000. Michael makes $2,000 per month, and Kay brings in $3,000 per month. They have an emergency savings fund of $10,000.
Step one: Assess current expenses
First, they’ll look at their current monthly budget:
- Mortgage: $1,100
- Food & Dining: $500
- Bills & Utilities: $325
- Gas & Fuel: $300
- Vacation Savings: $200
- Massage Therapy: $150
- Gym: $100
- Property Tax: $100
- Health/Prescriptions: $140
- Clothing: $100
- Auto Insurance: $45
- Home Insurance: $30
- Donations: $30
- Netflix: $18
- Personal Care: $25
- Misc: $120
- Retirement Savings: $834
- Other Savings: $883
Step two: Cut expenses
Next, Michael and Kay examine their fixed and discretionary expenses and determine where they could cut back, if needed. They eliminate savings and clothing from the budget right away. They decide that they could cut back on food by $100 if they quit eating out, and they could live without massage therapy and gym memberships. This lowers their monthly expenses to $2,633.
- Mortgage: $1,100
- Food & Dining: $500 $400
- Bills & Utilities: $325
- Gas & Fuel: $300
- Vacation Savings: $200
- Massage Therapy: $150
- Gym: $100
- Property Tax: $100
- Health/Prescriptions: $140
- Clothing: $100
- Auto Insurance: $45
- Home Insurance: $30
- Donations: $30
- Netflix: $18
- Personal Care: $25
- Misc: $120
- Retirement Savings: $834
- Other Savings: $883
Step three: Evaluate possible scenarios
If Michael lost his job, their monthly income would be $3000. With monthly expenses of $2,633, they’d have $367 left at the end of the month and wouldn’t have to dip into the emergency fund except in case of emergencies.
If Kay lost her job, their monthly income would be $2000. They’d either need to cut back more, or use the emergency fund to make up the $633 difference. If they used the emergency fund, it would last for about 15 months — barring any unforeseen expenses.
If both Michael and Kay lost their jobs and had to live off of the emergency fund, their savings would last for about three months.
Other expenses and income
In a real-life scenario, you’ll also need to account for health insurance. Whether you’d get coverage under your spouse’s plan, an individual policy, or through COBRA, you’ll need to add the premium into your financial game plan.
Unemployment benefits, if you qualify, are another factor in your worst-case scenario budget. Don’t forget that unemployment benefits are taxable. To avoid a ginormous tax bill on April 15, have federal income taxes withheld or pay quarterly estimated taxes on your unemployment income.
Next steps
Depending on your outcome from this exercise, you might decide it’s not time for a new car or a cruise because you need a bigger emergency fund. Or maybe you can relax because you’re right on track with your savings goals.
Either way, it’s a good idea to know where you stand and what your game plan will be if you were to experience job loss.
Have you created a worst-case scenario budget? Do you feel prepared to weather a job loss (either your own job or your partner’s)?
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There are 63 comments to "Job Loss: Got a Financial Game Plan?".
Shouldn’t you count unemployment in there somewhere?
April, I like how you tell readers to lay all the expenses out there and see what we can slash. Frankly, we can all probably slash A LOT of things we can do without for 6 months.
We’ll probably be focusing a lot more on unemployment and how to get a job for 2010 as we exit the year. The topic is so important to us, as it’s really kinda depressing knowing the state of the labor market.
That said, I firmly believe 1H10 is going to be a banner year for job growth! Why? B/c firms OVER fired in 2009, and now are just scrambling to re-hire. Very few expected such a V shaped recover in the stock market and economy.
Come January, hiring budgets are wide open again, especially end of January when most managers know their own bonuses already.
Best,
Sam-urai
PS It’s NEVER time for a new car. Stick with the 1/10th rule of car buying, and you’ll never financially self-destruct. Stay strong people!
I don’t have an emergency plan in place but I do keep track of every single expense and have a six month emergency fund.
That gets me pretty far as I could quickly expose areas where I can cut back.
I have thought about making a specific plan though, writing everything down and make sure the numbers add up.
I have also thought about adjusting my current budget to the level where it would be equal to the amount I’d get in unemployment benefits if I lost my job. The rest I’d put in savings and if I lost my job, I could just cut the savings and still be okay.
Never thought about a worst-case scenario budget. This is an interesting idea. Although at this point we have a minimal emergency fund and are taking all we can possibly spare to pay off CC debt.
We ran these numbers about a month ago. I’m the primary wage earner, so we checked to see what happened if I lose my job. If we stop the extra money we are pre-paying on the mortgage, cut savings (retirement, vacation, house renos), and assume we can drop the credit card charges to $0 (should be doable, it’s mostly clothing and meals out), we have a deficit of about $300/month. With an emergency fund of $20,000+, and some slush money in the various savings sub-accounts at ING, we’d be able to go for quite a while if nothing too bad came up. Of course, the longer you go, the more likely something big and/or bad comes up, so I’d probably try to cut harder and have less of a deficit early on.
The thing I remember is that at the beginning, you can live off your stores. There is food in the cupboard, clothing and shoes are in decent shape. Every so often, a politician does a “my family lived fine on welfare” stunt, forgetting that they didn’t need to replace shoes or get a winter jacket with that money too. Likewise, the hypothetical couple above thinks they can cut their clothing budget completely, but that isn’t sustainable in the long run.
I’ve always recommended to people that they make an emergency budget right along side their main budget and base their emergency fund off that. My emergency fund allows us to live for 6 months if only one of us loses a job or 3 months if we both lose a job, and those figures are based off the emergency budget. I’d love for that number to be larger- I’m losing my job in January and if I don’t find another before that, I’ll definitely be wishing for a larger emergency fund- but it is what it is and it certainly buys a fair amount of peace of mind.
Another thing to consider is that most people who become unemployed will qualify for unemployment or will be able to find another, perhaps lower paying, job. Being underemployed rather than unemployed will certainly slow the bleeding of the emergency fund and should hopefully assist most couples in getting through the storm if you have a solid emergency fund.
I’ve always preached to anyone that would listen that it’s important to have a solid emergency fund, but now that I’m personally faced with potentially needing to dip into mine, I’ve gone into overdrive. If you do not have an emergency fund, start it up immediately. Even if you can only put $25 a week aside, it’s better than nothing, just start saving for a rainy day.
This is great advice. When I worked on my budget about 6 months or so ago I started adding in extra formulas and such to see how we are doing. I incorporated a separate row for those expenses I deemed “living expenses” then I summed up all those fields in the excel sheet. This gave me how much we’d have to make to pay the necessities. We then compared that against our incomes to see what would happen if one lost a job (if both did we are working on building our emergency fund but have a long way to go – then again we just got married a year ago and are 25 years old). I’d highly recommend determining these scenarios ahead of time…better to be prepared. Hopefully it never happens but we know what we “need” if we don’t make enough for those extra “want” items because we lose a job. Great post!
I recently laid out my monthly budget and saw a few places where we could cut the fat in our budget if we needed to. One of the largest bills in our budget is our rent, $1,800 a month. So if things got really bad or I lost my added income, we could always move into a one-bedroom apartment in a less expensive area.
Next year will be a little unpredictable for me income wise, the school district I’ve worked for over 8 years is having tremendous budget issues. So, I’ll have to make some predictions about my income by next spring. I’m crossing my fingers!
Too funny- we just wrote out our worst case scenario budget yesterday.
I was thrilled to see that we could give off the lower salary (mine) indefinitely, if need be, or more realistically, a year to two years.
We did this – and it has saved us since I lost my job. We set up an automatic savings program so that a small part of every paycheck went straight into savings, patting ourselves on the back and never imagining that we’d actually use the money. Then I lost my job, severance ran out – and we had this fund to keep living off of. That emergency fund means that I’m not frantically grasping at every terrible job opportunity that comes along (for which I’d be rejected as overqualified anyway). Not only do we have funds to pay for the basics – the very existence of the emergency fund has given us peace of mind.
They could cut Netflix as well for the duration of their unemployment. It’s not much, but everything helps in a situation like that.
Thanks for the post. While I am VERY grateful to still be employed, the thought (FEAR) of losing my job is always in the back of my head. I need to get serious and get my head out of the sand and make some REAL plans on paper in case I find myself joining the ranks of the unemployed.
I like the post and the mindset it gives readers. DH and I have been running the worst case scenario numbers for a while and are prepared. It’s a good exercise. We are both self-employed, so health insurance and retirement savings all come out of our pockets. So far, the work has still been coming in.
The only downside I see to the post is how does it relate to people who have a lot of consumer debt? Your budgets pretty much work for those who are debt-free, with the exception of housing costs.
What would you suggest to those who have to factor debt repayment into the worse case budget?
I ran a “worst-case” budget – and when the stuff hit the fan last year, our actual “worst case” budget was nothing like it. We easily found additional ways to cut.
Still the exercise was a good one because it created the right mind set. Nice job April.
Kandance–Good point about debt repayment. If I lost my job and had debt, I’d just pay the minimum until I found a job. To factor that into the scenarios, I’d look at total debt and estimate what the minimum payments would look like, and include that in expenses.
If you are going down the worst case scenario trail, you should have a post or two about when you should negotiate-down totals on debt and follow by pay-off hopefully reducing that total to 1/4 of its former proportion. If you don’t think that is a good idea, at least you would agree that it is awful that some people are falling prey to unscrupulous credit counselors that say they will do this service and do not or do so at an exorbitant rate. When we negotiate down mortgages we call it a “short sale”.
And on that note: I noticed a local realtor was advertising to hire 2 people to help him negotiate down prices on mortgages that were in danger of foreclosure. I believe he is purchasing them and reselling them elsewhere making a profit in the process and keeping the original homeowner in place.
Terrific example! Taking a close look at worst case can be revealing, that maybe even worst case isn’t as terrible as our imagined fears.
I only have 1 month of expenses saved right now (I know, I know! I’m working on it). My plan would be to call my student loan lenders and beg for a hardship deferment. That’s my biggest expense.
Happily, my job is safe so long as a) I don’t do anything stupid, and b) the company itself doesn’t shut down.
This is a great exercise. I do this at least yearly to make sure I still have adequate savings as expenses tend to change over time. Any time you adjust your normal budget your job loss budget should be adjusted to match!
I also want to add that this is a good exercise to do if you are still trying to cut things from your budget on a more permanent basis. It forces you to ask yourself if you REALLY need this or not. Works especially well for those with debt!
My wife and I try to keep our expenses low so that we could live off the lesser of our two incomes. We don’t have kids yet so this is relatively easy. And yet, because my wife works for the government, her take home is only a few hundred bucks after all the special savings accounts she gets access to. We don’t have cable or netflix (we get our movies from the library), and pay our gym memberships one year at a time. There are a couple things we could cut for a while – eating out once a week, and we probably wouldn’t plan one of our yearly vacations until employment was restored – but our expenses are generally so low already that I don’t think it would be needed.
I did end up unemployed last November. We had, at the time, well over 12 months’ worth of living expenses in our emergency fund, so chose not to make any changes right away to my wife’s savings allocations. Using my network (which, to be honest, I didn’t even know I had) I was able to find another job at a significant pay increase in about 5 weeks.
Right now we have a baby on the way, our last trip for a while planned in February, and just bought a car. So our savings are down and our risk is up. Still, I’m not worried, since our savings are still high and our expenses are still below my wife’s income for now.
I have run the job loss numbers in my head but they are so depressing that I did not write them down. I do have a plan for job loss that involves me packing up and moving in with someone but I pray that it does not come to that.
I have not devised a ‘worst case’ but I need to ASAP. I can already tell my emergency fund is NOT what it needs to be. Thanks for the prompt.
Nice post. You would be amazed at what you can save when you cut out simple things.
I was getting 2 ice coffees a day about 6$ x7 over $40 saved.
There is always money to save if you look hard enough
Job loss (or underemployment) has already hit _at least_ 10 per cent of us. We all know that the government stats are underestimates of the actual job loss. I think this is worst case scenario “lite”. If you can leave Netflix, donations, and misc. on your list, this is hardly a worst case scenario.
P.S. what’s the “1/10th rule of car buying”?
We definitely have been planning for these contingencies. Not only have we created an emergency budget as you have described very well here, but I have also kept “feelers” out in my industry. I am confident that other opportunities would await me if my current job fell through, but it certainly brings peace of mind to plan ahead.
Well, I don’t have a job, so if my husband lost his job, we’d have to reduce our expenses to about nothing.
– move back into his parents’ guest room and abuse their hospitality again ($750 saved a month)
– cut the entertainment budget, the bills for the place we wouldn’t be in anymore, leaving only food costs.
Our food costs being 250-300 per month, our emergency fund as it is could only help us out for 3 months.
But we’re working on making it bigger.
Great post!
I like the way it is pretty simple (much easier than making a full budget, but still with useful information) and hopefully underestimates the amount that would be able to be cut. It’s nice having a bit more of a savings cushion, especially since it probably takes a little while to really adjust to the worst case scenario and figure out how to pare down to the bone. This pre-exercise helps you think about some big cuts you can make right away while you’re still too much in shock from the loss to do serious planning. (And, of course, there’s always actual unexpected emergencies like water heaters dying or cars needing new breaks that can happen, for which having a cushion is good.)
In case of job loss, we are screwed. We might manage to live off my income, if I can persuade hubby to cut cable, internet, phone, and eating out down to nothing. (that’s a pretty big if.) We could not live off his. I am working on the e-fund but it is a slow process. We have maybe 1-2 months’ expenses in there.
One point is that people should do this BEFORE losing a job. Have a plan for what you are going to cut back on, and a schedule. A lot of people wind up in trouble because they expect things to turn around more quickly than they do.
For example if I lost my job I would immediately cancel cable. After 3 or 4 months I would also cancel internet and cell phone services (assuming the contract allowed it). I wouldn’t cancel internet right away since it would be needed for the job search, but if unemployment dragged on I would use the library since I would have more time than money.
We didn’t have an emergency plan, so when I was laid off last spring, it took a “crisis summit” to figure out how we would proceed. Unemployment compensation ended up covering groceries, fuel, and insurance (we were already self-insured). DH covered the rent and utilities. We hunkered down and I job-hunted pretty hard.
Registered with five different staffing agencies, but due to long experience and higher education, was not considered for many entry-level positions I would have been happy to take (especially if I got to move into a new field and get some new skills).
Did some teaching part-time (dance), which brought in some money and helped build my network for an eventual career change. Landed a temp job for ten weeks, and finally landed a new full-time position in my field. Got lucky: it’s a good firm with nice people and I don’t have a hideous commute.
Our renegotation after I got the job was that DH would continue paying the rent & utilities and I’m in charge of insurance, food, savings, and debt repayment. We’re making the last item a really high priority now. When our overall financial commitments are reduced, DH will be able to reduce his hours. Right now he’s working 6 days a week.
We do have an emergency fund, but we still don’t have an emergency plan!
Excellent post. A healthy emergency fund gives you wonderful peace of mind, even in such turbulent economic times.
Great points! This is a good place to start. However, as someone who actually did lose a job a couple of years ago, there are still a few costs people have to consider:
Moving — it’s not as simple as saying “I can save $400 a month by moving from a $1200 apartment to an $800 one”. Moving expenses, putting down a deposit on a new place, switching over your services and potential commuting time when you do find a new job also have to be considered. (That is, if you can actually rent a place without proof of employment). If you have to give two months notice on your apartment and then get locked into a year’s lease somewhere else, is it really worth it to move?
Canceling subscriptions and memberships — it’s not always possible if you’re on a contract. Besides, there may be cancellation fees too, not to mention fees to re-up if decide to go back when you get a job.
Job hunting — It costs money to find a job, like traveling to interviews, updating your portfolio, buying interview attire, printing costs, networking events, etc.
Obviously, people should do what’s best for them. I’m just saying that cutting back isn’t as easy as it looks, especially when you’re under duress.
I am still in the process of building up my emergency fund. After a year I have 4 month’s worth of expenses (and yes, I’ve looked at it line by line, subtracting the unnecessary expenses and adding extra for COBRA). In another year I’ll have 2 more months available, plus I’ll have paid off a student loan.
But I still have anxiety since I am single and have a mortgage. If I really lost my job now, what would I do? I could live off the EF for 4 months. Then what? The question I struggle with is whether I would put my condo on the market immediately or try to wait it out. It’s kinda scary to think about. I just keep trying to squirrel it away.
Great post! I think everyone should do a “financial fire drill.”
How much should you have in your emergency fund? I read somewhere that it should be one month for every 1% of unemployment, plus one month. As the unemployment rate is currently 10%, folks should try to have about 11 months of living expenses in an emergency fund.
As someone mentioned upthread, the longer you are unemployed, the more likely it is that some major crisis will occur (you fall and break your arm, or the furnace stops working, etc.).
If I lost my job, my state’s unemployment ($450/week; 1300/month after estimated taxes) would cover all of my fixed expenses, and I have enough in savings to cover food and other necessities for at least 6 months (eating beans and rice and other inexpensive foods!). I’ve paid ahead on my final debt, so could stop paying it for the duration of my unemployment.
If I had to move for a new job, I could, but if it didn’t come with a relocation allowance I would have to put the expenses on a credit card, which obviously isn’t ideal. I’m working on boosting my emergency fund, and my job is as secure as a job can be, but I never assume that I’m perfectly safe.
I was unemployed for 16 weeks and 20 weeks in 2000 and 2001, so I’ve been there, and it’s stressful even when you’re not hemorrhaging cash and piling on debt. Good luck everyone.
Thanks. This has really helped me in figuring out my emergency fund (step #3) with two different scenarios now that I’m trying to transition from rent to own housing. So I’m planning on a 3 month emergency fund pre-own and a sixth month post-own and allowing for the extra expenses of house ownership. Five more months on step #2 left!
A lot of people seem to be counting on unemployment benefits. I’m sure that it depends on the type of position you have, but in many white-collar jobs it can be better for your career to “resign” rather than allow yourself to be out-and-out fired. When that happens, there is no unemployment. You still might not get much severence, but it’s easier to explain to future employers than a firing. And the employer will often throw in a reference which they wouldn’t do if you got fired.
I’ll chime in with everyone else: This is a really good post!
We are building an emergency fund right now, which will last only about 2 or 3 months if we both lose our jobs. I’m gonna use this post to figure out how much we need to save. But also, I need to think about what we can cut from our expenses.
@Suzanne – a lot of people believe that is true, but it doesn’t make it true. Especially with regards to unemployment, you may be leaving a lot of money on the table just to be able to say you resigned.
Also, there are many levels of “fired”: getting actually fired due to misconduct (the technical meaning of the term); getting terminated due to performance; getting laid off due to reduction in staff/lack of work/economy/many other reasons; quitting voluntarily; there’s even “constructive termination” where your employer deliberately poisons your environment hoping you will quit.
Anyways, if you “resign” involuntarily and then are out of work for a long time, who is going to believe you did it voluntarily? You’d actually be better off just admitting you were laid off. No one will hold it against you.
It’s definitely a case by case basis. I’ve been in that situation where I had to make that choice twice (hmm maybe I suck at my job). The first time I was “laid off” and got unemployment. It’s very different to explain a large layoff and another to explain that you personally were laid off and no one else in the department was. I did not get a recommendation and it took me four months to find another job. The second time I got that choice I “resigned”. I got a strong recommendation and found another job immediately. In my profession, I would take the resignation anytime.
It really depends on the circumstances, the industry and the firm. But in many cases the resignation can definitely be a better choice.
I did a worst-case budget scenario and it helped a lot. There were even things I found right away that I could cut! I definitely recommend that everyone tally up their monthly expenses.
Unfortunately, many people are afraid to do this. Maybe a post on why people are so scared of this, and how to get through it?
-Erica
We made an emergency budget 9mths ago. Worked hard to pay down debt and save from our single income. We have 3 kids and were open with them about our plan. In October I actually activated our bare bones budget to try to save as much as possible before the axe fell. It was tough on us all. In November my husband was laid off, but thanks to our hard work, we had got rid of our debt and had 6mths of savings. our biggest worry was healthcare. COBRA was going to cost us $1300 per month! How on earth are you supposed to cover that with no income?!
Fortunately, we got another job and although it pays a LOT less, we can still manage. Make a plan, work on it and you’ll relieve the stress if the worst happens.
We live on one salary and I have to say we manage to handle any job loss or emergency
We have an “emergency” budget, where we just cut expenses (cheaper daycare, no discretionary spending) and stay independent. We have an emergency fund that would cover that budget for six months or so (the uncertainty is COBRA costs vs. unemployment benefits – just our living expenses it will cover for 6 months).
And then we have a really emergency budget with no childcare costs and no health insurance, and then our budget stretches for a year. In a year we could sell our house without going underwater (though if it were this year, we’d take a loss).
As someone who LIVED the worst case scenario these last 18 months I can’t recommend doing this enough.
It helped that I am fairly financially savvy (owned a profitable business) but after we sold our business the economy crashed and neither my husband nor I could get job. We are both 45 and neither of us had EVER been unemployed.
I’ll spare the ugly details but it’s been the hardest, toughest time of our lives.
But he landed a great job 3 months ago and I start my new job in January. More money than we made in our profitable business. We are starting over and my goal is to pay off $50K in debt (biz debt and living expenses for our lean 24 months) within 10 months. After that we will save one salary and live off the other.
It’s doable as we lived on practically nothing for 2008-09.
Let’s hope 2010 turns out well for all of you who are looking for new jobs 🙂
This becomes much more tricky when there is only one income to begin with. Seeing examples like these makes me realize how high my mortgage is compared to my income (which I think is not uncommon).
Any company, boss, or HR department that would extort a resignation out of you by withholding a reference is being rude. I would tell them to go stuff themselves, and get a reference from a trusted boss or coworker. If you don’t trust anyone then you should have found a better job long ago if at all possible… If I found myself in this situation I’m not sure what I would do, but it’s a rare circumstance and I think far too many people err on the side of resigning vs. getting terminated or laid off.
Specifically regarding references, there are some legalities (depending on your state) behind giving references/recommendations. Giving a bad reference could actually count as libel, or a violation of your “right to work.” Some large companies will only verify dates of employment to avoid being sued.
There is one other circumstance under which I might do this – if I had my next gig lined up. One time I worked at a place where the layoffs rumors were circulating a couple weeks in advance. Some people took the hint and started interviewing immediately. One guy was on his phone on the way out of the building, accepting his next job.
Some circumstances are more extreme even for the well prepared, unfortunately. For instance, I was a high earning publicist in 2008 when we decided I was going to stay home with our two new babies until they started preschool (about a 2-3 year ‘life project’ I call it 😉 ). My husband earned more than enough to support us as an electrical engineer, and since we were living in moderation, life was good. UNTIL he was laid off 3 months ago. Now we’re living on our emergency fund, which will last us for 3 more months. I CAN’T get a job because there are 2 year waiting lists for daycare in our area. And even if I could manage to get a job before my husband could, I don’t want him to watch the babies because if he gets a job offer then he’ll have to turn it down to watch our kids (which I’d prefer to do anyway). After our emergency fund runs out we could probably live off of some our savings, but since we only found financial responsibility and minimal living a few years ago, our savings isn’t much yet. So it looks like if we don’t find work before Spring, we’ll be bartending or something. I could always sell my body I guess. I’m still cute 😉
“Anyone who dares to waste one hour of life has not yet discovered the value of life.” -Charles Darwin
I think the long term solution to recession is to build up security by starting a solid part-time business.
During the last recession, my work hours were cut to 50%, and I was motivated to start buying fixer-upper houses and renting them out.
Now 8 years later, I have a safety cushion. Even if I lose my job, I would still have rental money coming in.
Three months of an emergency fund seems to be about right, from what I’ve heard.
However, in the industries that I’ve worked in (mostly retail) there are always jobs available. Its just a matter of whether you want to do them or not. I think I would concentrate just as much on finding work as anything.
I ran our scenarios about 18 months ago when things were starting to get shaky. At the time I was at one of the no longer existent financial services companies and I was nervous with the chatter I was hearing.
Once we determined our worst case it was fairly quick to squirrel away a years worth of expenses, especially with the fear of unemployment. Our financial philosophy made this easier as we base our expenses off of one salary and with the exception of the mortgage everything else is minor.
Lucky for me I was able to jump ship before it went down. However, we don’t know what will happen in the future, so for now we have peace of mind.
We are DINKS and our worst case scenario was both of us unemployed and we did not consider unemployment pay in the calculation.
Yep, we’ve done this since my husband lost his job and was unemployed for about four months earlier this year. Even though we lost fully half of our income, we were able to cover our expenses with my salary plus using about £250/month of our tiny emergency fund (about ~£1200) by living on a strict emergency budget. I’ve since switched jobs myself and make 20% more than I did then (yay!) so if my husband lost his job again I could theoretically cover all of our expenses with just my salary using an emergency budget (no money for fun stuff, but at least we’d pay all our bills!) If the situation were reversed and I lost my job, we’d only need to use £100/month out of the emergency fund on top of my husband’s salary to cover everything. That’s great for helping towards peace of mind.
We do have some debt (mostly my student loans) and the biggest thing I did to help our budget while my husband was laid off was get the minimum monthly payments as low as possible by consolidating my loans. We can and do overpay the minimum now so we don’t pay a fortune in interest, but it’s such a help to know that if we needed as much cash as possible we could go back to simply paying the minimum until our financial situation got better.
The other thing that really helps out an emergency budget is having the least amount of financial commitments possible- ie, don’t get locked into a mobile phone contract, pay the lowest rent/mortgage you can while still meeting your essential housing requirements, don’t carry a car loan if at all possible, and obviously, don’t carry credit card debt. This makes emergency belt-tightening so much easier (I remember how much angst the student loans caused me when I had to find money from *somewhere* to pay them and our e-fund was fast running out, so I definitely don’t want to make that situation worse in the future by paying for non-essentials on credit or by being tied into a contract.)
Oh, and don’t forget to subtract the cost of working if you’re doing an emergency budget in case of job loss. We don’t have a car so I have a bus pass to get to work- an expense I wouldn’t have if I was no longer working (I’d still spend some money on bus fare, but not nearly as much.) Same deal with childcare if you’re paying for it, etc. On the other hand, if you don’t normally have anyone at home during the day, you might want to budget for a small increase in utility bills once the unemployed person is mostly at home all day.
We saved diligently and spent smart, and yet with me out of a job for 15 months now, our savings are gone. You just can’t plan for being out of work for so long. Most days I feel like crying, because being careful did us absolutely no good. Everything is gone.
In 2008, my husband was finishing business school and had started a company. We had taken out loans because the interest on them would be less than we were making on our investments, so we figured we could pay off the loans as soon as he was done. When the market tanked, it took away our ability to pay off the loans, meant that his company could not get angel investors, and my income could not cover our expenses.
We tried to live on our investments and quickly realized that we would run out of money completely in a month or two. So we moved in with his parents. I got a new job and he kept looking. Almost a year later, we’re still with his parents, trying to save money and doing the best we can. We’re so grateful that we didn’t have credit card debt or a mortgage or kids to take care of.
The first thing we’re going to do when my husband has a full-time job again is create a budget and start an emergency fund. Thank you for the encouragement.
One thing no one has mentioned that I would do is research individual high-deductible health insurance if I were healthy right then plus group insurance options from professional and social organizations I am in or could join before committing to COBRA. (All the times I’ve been unemployed, I’ve gone without health insurance, but I’m older and richer now.)
Scary stuff Marie. Sometimes planning and being good doesn’t work, but it’s more likely to work than not planning and not being good. Wish I had some good advice for you.
I started an emergency fund, and until this summer, I had 1-2 months built up. Unfortunately, due to a number of financial crises this past year, I’m wiped out. I have about $200 in it right now. I try and put something in each pay period, but even with two incomes, things are very tight.
My mortgage is very high compared to my (only my) income. With my boyfriend’s income, it’s less than half. I always cover it with no problem. If one of us lost our income, though, we’d be in trouble. I could still cover the mortgage, but that would be it. (Mortgage always comes first in my budget.)
The only debt I have is some medical debt. Sometimes, that is unavoidable. We have no credit cards, though, and his car payments will end in April of 2010.
We just do the best we can. Fortunately, though my company has reduced the size of our raises, we ARE still getting holiday bonuses, and my plan is to bank about half of that. Every little bit helps.
I know right off the top of my head a number of places we could cut our budget, if “the unthinkable” happened, so that would help us. We are not big spenders as it is.
You just do the best you can.
Great post, April, especially the section about “other expenses and income.” In my experience, in tough times, it’s even more important to make sure you and your family are protected. I think it’s wise for people to consider all of the benefits they might lose as a result of a layoff. Some employers provide employees with health insurance, disability insurance and life insurance coverage. And for some, if they wait for a layoff to occur, it could be too late to take action. Those policies can be difficult to replace, especially for people who are older or have health problems. Personal policies might make sense for those who want to help protect their families from those kinds of risks in advance. Since not all group insurance is available in an “individually owned” policy, for the policies that can be individually owned, it’s worth taking the time to investigate cost and design compared to the employer provided products.
This was very insightful for me … thank you. The situation is more precarious as a single person because you have to rely solely on your own income with no backup. At least when you have a domestic partner, there is a secondary income to buffer you during a period of unemployment. This is what gives me incentive to continue increasing my emergency fund for that “what if” worst-case scenario.
I think single people do have it worse off. 2 people sharing bills and a budget can help you actually save in the long term.So long as you stick to the budget.
Also with market conditions and rise in unemployment there is no guarantee you will get a job the next day.
Its always best to tighten your finances for situations such as illness and unexpected bank charges etc.
Marie,
How old are you? And how much was your emergency savings 15 months ago?
-Mike
Also, remember that most lenders have hardship programs. If you lose your job you can usually defer payments on student loans. Many credit cards and auto loans will let you skip a payment. And it is probably best if you let your mortgage people know right away, especially if you’re not sure if you can make the payment.
Regarding resigning vs being fired: My mom wound up in a situation where she resigned and the agreement was that the conflict wouldn’t be mentioned to any employers. It turned out that the secretary was so upset about what happened (she was on my mom’s side) that she told everyone who called for a reference before they spoke to the boss. It wound up turning off some potential employers and I’m sure one or more of them asked the boss about it and got his side as well.
I am asking for help! Any suggestion provied will be considered. I have ben in my profession 25+ years. Love what I do – Not a high paying arena but a satisfying one for the most part. Reading GRS has taught me many of my poor discisions could have been better. But in reveiew of the above data I am sacared. – I earn 3466.22 per month. after the US govenment, heath care, 180 to savings, my take home is 1800. – home 693. -electric 100. – phone 45.00 – fuel to go0 to work 200.00 – it just dose not add up. I had a nice emergency fund, a few cd and felt ok, now I am lost and do not know what to do. I apoligise the pity party – I have lost my way. Annie