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<\/a>Some of\u00a0those\u00a0lucky enough to hang onto their jobs have experienced salary reductions, reduced hours, or withheld bonuses.<\/p>\nEven if your income has remained unaffected, hearing stories on the news and witnessing friends and family members experience job loss can make\u00a0a person\u00a0nervous. 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\u00a0a cruise.<\/p>\n
But wiggling out of a major purchase means\u00a0little if you still can’t afford to pay your mortgage after job loss.<\/p>\n
Worst-case scenario planning<\/em><\/strong> 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\u00a0$2,000 per month, and Kay brings in $3,000 per month. They have an emergency savings fund of $10,000.<\/p>\n Step one: Assess current expenses<\/em> Step two: Cut expenses<\/em> Step three: Evaluate possible scenarios<\/em> 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,\u00a0it would last\u00a0for about 15 months — barring any unforeseen expenses.<\/p>\n 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.<\/p>\n Other expenses and income<\/em> Unemployment\u00a0benefits, if you qualify, are another factor in your worst-case scenario budget.\u00a0Don’t forget that unemployment benefits are<\/em> taxable. To avoid a ginormous tax bill on April 15, have federal income taxes withheld or pay quarterly estimated taxes on your unemployment income.<\/p>\n Next steps<\/em><\/strong> 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.<\/p>\n 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)?<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" 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.<\/p>\n
\nThis 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\u00a0is our\u00a0worst-case scenario? Could\u00a0we cover the essential bills? And for how long?<\/strong><\/p>\n
\nFirst,\u00a0they’ll look at their current monthly budget:<\/p>\n\n
\nNext, Michael and Kay examine\u00a0their fixed and discretionary expenses and determine where\u00a0they could cut back, if needed.\u00a0They eliminate\u00a0savings and\u00a0clothing\u00a0from the budget right away. They decide that they could cut back on food by $100 if they\u00a0quit eating out, and they could live without massage therapy and gym memberships. This lowers their monthly expenses to $2,633.<\/p>\n\n
\nIf 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\u00a0month and wouldn’t have to dip into the emergency fund except in case of emergencies.<\/p>\n
\nIn a real-life scenario, you’ll also need to account for health insurance.\u00a0Whether\u00a0you’d get coverage under\u00a0your spouse’s plan, an individual policy,\u00a0or\u00a0through COBRA, you’ll need to\u00a0add the premium into your\u00a0financial game plan.\u00a0\u00a0\u00a0<\/p>\n
\nDepending on your outcome from this exercise, you might decide it’s not time for a new car or<\/em> a cruise because you\u00a0need a bigger emergency fund. Or maybe you can relax because you’re right on track with your savings goals.<\/p>\n