Monday, December 1, 2008

Things to do Before You Lose Your Job

The economists are finally willing to admit we’re in a recession, because we actually could be heading into a depression and they certainly won’t admit that. The biggest problem most individuals may have to face in the coming months is job loss. Tens of thousands of good jobs, jobs with health benefits, have already been lost this year. More jobs will be lost in the ripple effect.

So today let's think about what to do prior to losing a job:

1. Start or increase your rainy day savings. Right now. You might not have much time before every dollar saved becomes critical. Even an extra $100 is going to look very sweet when you’re struggling to make ends meet on unemployment compensation.
a. Create an emergency savings plan and put it on automatic immediately by having deductions made directly from your paycheck.
b. If retirement is far away, consider reducing (not eliminating) your 40l(k) contribution to increase your rainy day savings quickly. Remember, if you have to break into your 40l(k) early, you pay a 10% penalty and income tax on that money. You need at least eight months in living expenses in your rainy day savings. They must be in an FDIC insured account and accessible without any penalty.

2. Make a list of areas where you can cut your expenses. You don’t have to stop these conveniences or lifestyle choices immediately. But you should list them and the dollar amount they can save, so if the worst happens, you know what to do immediately. Sample expenses you can list for cutting:

• Smoking. Duh. Pricey. Cut down or quit.
• Drinking. Alcohol is an expensive luxury.
• XM Radio, OnStar, Netflix, or any other service billed monthly as an automatic charge on your credit card. Try a less costly level of service or cut it out altogether.
• Cable/satellite television. Investigate cheaper deals.
• Phone service. Keep your phone number so you won’t miss out on any employment calls. But try cheaper phone suppliers, or month-to-month minimal service, or even pay-as-you-go service.
• Haircuts, massages, manicures, etc. Go less frequently or find a cheaper-but-still-good supplier. Or stopping altogether. Most of us can skip pedicures, since no future employer will see them unless we’re going to work in sandals.
• Newspaper/magazine subscriptions. Do you read what you pay to receive? Can you get the same information elsewhere?
• Buying drinks and snacks whenever you are doing errands. It’s good for your waistline, too.
• Yoga and other exercise classes or gym memberships. Yes, they reduce stress, but look for less expensive adult education leisure classes or free classes instead. Or start your own at home.
• The best seats at sporting or cultural events. You might still go, but go to fewer events and buy the nosebleed seats. And don’t eat while you’re there; you’ll save a fortune. If you can use public transportation or park a little farther away, you’ll also save a bundle.
• Attend movies or other events at bargain times. And don’t buy from the concession stand.
• Entertain friends as a lunch date instead of a dinner date. Limit alcohol when dining out since it’s very expensive.
• Stick to a budget for presents, seasonal decorations, and foods.

3. Do not take on any new, long-term expenses. Samples of long-term expenses you should not sign up for at this time:

• Car leases. Nearly impossible to break, and you won’t own the car.
• Luxury car purchases. Any car you can’t afford is a luxury car. The payments and upkeep should be easy to cover each month, or don’t buy it.
• Magazine subscriptions. You pay it all in advance and you can’t get a refund.
• Sporting and cultural subscriptions. This is not the moment to commit hundreds or thousands of dollars far in advance. Put the cash in savings instead, and buy as you go. You could lose your job and have to move to another city and miss seeing the games or the shows.
• A purchase loan at a fixed rate whose total you couldn’t pay off this month if you had to. This could be for furniture, appliances, home improvement services, or any other big ticket item. This is not the right moment for big-ticket items. Sometimes they offer a nice deal, but what if you lose your job tomorrow? How will you pay off your debt?
• Any debt that you will not be able to pay in full if you lose your job tomorrow.
• Buying a new house unless you have the cash. Yes, it’s a buyer’s market. But unless you plan to live in the new house less expensively than in your current home, and have already sold that house, don’t do it.
• Overshopping, such as buying multiples of clothing or accessories. Assume that soon you may have no money to put in those handbags.
• Travel or other luxury spending, including electronics, clothing, and other toys. Don’t treat yourself to a blowout expense right now. You might very much regret that week at the beach or huge television when you’re scrambling to pay your power bill.
• Committing in advance to specific dollar amount of charitable giving. You might end up unable to make good on your pledge. Or you might try to sustain it at the cost of being short in some other area. Make your dollars go further by utilizing corporate matching funds or joining matching funds drives.
• Voluntary plastic surgery, lasik, braces, or other items that would lock you into a loan for a year or more. The exception is when disfigurement is too obvious and could cost you socially or financially.
• Organizing containers. You can organize your stuff without buying new stuff.

If we all followed this advice, then we’d be helping creating a depression by not spending. Which would not be a good thing for the nation’s economy in the short term. But we aren’t all going to be smart about our money. Some of us are going to keep on spending the same old way, buying too much junk, overextending ourselves with loans, and just hoping that it won’t all come crashing down on us. Not a good approach in an uncertain economy. Choose not to take this dead-end route. Instead, be one of the smart people. Think ahead to what you’ll need in the coming year, and take action.

1 comment:

SB @ One Cent At A TIme said...

Very nice article, should be helpful for people in need. We should all be prepared for the worse in this economy.

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