If you’re like the rest of us peons, you probably can’t protect your job from a lay-off. Your finances, however, face no such shortfall. This article will help you get your finances in order so you have one less thing to cry about into your whiskey after getting laid-off. After all, no one likes salty whiskey.
How long will you be unemployed = how big a stockpile do you need?
Our industry is cyclical, which means you’re probably going to get laid-off during a downturn. During the last downturn —can I say that? Is it over yet or not?— I saw some people get laid-off and bounce right back into a new shiny office for another operator. As a result, I had a level of jealousy and ire I dare not articulate. I wondered, and still do, how in the heck they did that. If you did that, teach me your ways please! I also know people who are still laid-off, two years after being handed their stuff in a cardboard box. Side note: that “cardboard box” thing is now a metaphor. They don’t give you a box anymore…you have to use a friggin’ tote so “you don’t fall carrying a box.” Not that I’m still bitter about having to move my stuff from my pre-packed box into aforementioned friggin’ tote while building security supervised me or anything.
Anyway…back to the topic at hand: lay-off duration. In our industry, it’s not a far stretch of the imagination to expect a year(s) long lay-off, so a good goal for anyone is to be able to handle a year’s worth of expenses. If you have a working spouse, you can probably get by with six months’ expenses.
Plan and spend conservatively
There are two sides to every equation, and your finances have savings on one side and spending on the other. Saving for a year’s worth of expenses is a lot easier if your expenses aren’t astronomical. I’m not saying you need to live on red beans and rice when you’re making six figures, but you should live a conservative lifestyle knowing full well your paycheck could (pink) slip out from under you at any time. If/when you are handed a pink slip, I promise not to make you suffer through too many horrible puns.
If you’re just now starting, here’s what to do
If you’re just graduating school or starting out, you can buffer yourself against a layoff most easily because hopefully you haven’t locked yourself into an untenable financial situation. Consider maintaining your broke college student lifestyle for six months or a year so you can knock out lingering debt and build some savings. If you’re looking to drop roommates and the shared cost of living they come with, figuring out housing can be tough, but a variety of online calculators can help you figure out how much rent/house you can afford. Most are generous in their assumptions though, so tread carefully. While the percentages those sites give are good guidelines, build a better buffer and use take-home pay instead of pre-tax income. While this will reduce what you “can afford,” it should prevent you from being house-poor. I’ve always lived a comfortable, but relaxed and fun life with a rent/mortgage payment that hovers around, or less than, 25%-30% of my take-home pay. This has left me plenty of money each month to pay myself and the bills. It also really helped when I lost my job.
If you’re already committed
If you’re currently stuck in a high cost rental/mortgage situation, downsizing isn’t your only option, but it is a good and effective one. Look at either refinancing to get a lower monthly payment or discussing your situation with your landlord to see about lower rent. Perhaps you can perform some chore(s) around the property in exchange for some big discounts. Don’t wait until you’re laid-off to do this or to cut other costs. Be proactive and start today. Discuss rates for various utilities with your providers now. Shop around for better car insurance, and discuss lowering your interest rates on any lines of credit you may have. When you have less money going out, you can put more into a savings account to start your emergency fund.
Evaluate and build your emergency fund
If you have an emergency fund, good for you! You’re all set. Just kidding…we both know the only reason you’re reading this article is because your finances are probably in the toilet, and you’re hoping I can help you flush them out (you knew my puns could extend beyond geology, but I bet you didn’t know my skills also include classy bathroom humor).
Take a critical look at whatever emergency fund you have…or don’t have, and start making it bigger any way you can handle. I’m a fan of the “temporary abject poverty” method to beef up or start an emergency fund. It can be challenging, but it’s also cleansing and temporary. Besides, seeing some money in the bank tends to be motivating.
When I say “abject poverty,” I’m being pretty literal. I’m talking keep the lights on and warm water running, but cut your first-world problems like organic produce, gym membership, and daily Starbucks. Invest in a $5 lunch box. Use it frequently and become best buddies with it because that bad boy will be your simplest wealth building vehicle. You could even splurge and get one that’s $15. Keep paying down debt, but pay only minimum payments for now. Also keep any investments you might have at the company match (if you have such a luxury), but scrimp and save every last cent of anything else. Do this until you have $500 in savings. It will help you build a habit of saving and let you clean out your financial closet.
Ideally, you’ll spend only a few months in this financial purgatory, but there is a time factor built into this process. If you can build $500 quicker than a few months, great! I won’t ask you why the heck you don’t already have an awesome emergency fund, but I will tell you that you’re not done. Don’t get back into your old routine before the one or two month mark. Supposedly, it takes about three weeks to build new habits, and you want saving to become a habit because once it is, you may surprise yourself with how quickly you can build your stockpile. After some time away from your old spending habits, you may find you enjoy some of your new frugal ways.
Once you’ve planted your money in your savings account, nurture and grow your emergency fund; don’t abuse it. If your furnace dies in December, that’s an emergency worth pulling money out for. You don’t pull money out for that nice flat-screen TV you’ve been wanting. Even if it goes on sale for 50% off. Your emergency fund follows the golden rule and will treat you the way you treat it. If you’re good about taking care of it, it’ll take care of you when you need it to. Give it some solid TLC until you feel like you can cover about one year’s worth of living expenses. Once you hit that, you can enjoy a nice glass of tearless whiskey and congratulate yourself on the hard work.
Prepping for a layoff is a bit like changing all your passwords every few months: it’s something we all know we should do, but none of us want to do it. In the 18 months I got to work before getting laid-off, my husband and I used the steps above to go from extremely broke college graduates who had to borrow money from my parents to physically arrive in Denver so I could start my new job (not joking…we’d have been stuck in Kansas) to enough financial stability that we made almost zero life adjustments during the 13 months I was laid-off. While we delayed major life choices like buying a house or having kids, we weren’t scrambling to pay bills. Having an emergency fund is not exactly sexy, but it’s extremely relieving to know you’ve got a cushion to cover you when things go south. Layoffs suck, but your finances don’t have to. Live below your means, get some cash in the bank, and you’re well on your way to lay-off proof finances.
Rub some acetone on it and call me in the morning.
Side note/legal jargon: Everything on this blog is based strictly on my own personal, private views and is completely independent from my current employer unless otherwise explicitly stated. In no way, shape, or form is my current employer responsible for any written content on this blog, though I may borrow the occasional picture with appropriate permissions and credits.