A while back, I posted “Do You Have a Crisis Plan,” asking what you would do if you were laid off or had some other sort of financial crisis. But sometimes the question is not just “what will you give up,” but “how quickly will you give things up.”
An example drawn from real life: a couple in which the husband has just lost his job. The wife is a stay at home mom. They have a lot of home equity, and pretty good savings due to an inheritance, but they have a pretty expensive lifestyle. They also have a few significant one-time expenses planned for later this year: a vacation and a bat mitzvah.
Their savings might last a couple of years if they stay in their current home and make some cutbacks, like taking the kids out of private school. They could also refinance their mortgage to lower their monthly costs a bit, though that could be problematic if no one has a job. They could sell their house and move to a much smaller place with lower maintenance costs. They could cancel the vacation and scale back the bat mitzvah, but they don’t want to, for the sake of the kids, and probably, to some extent, keeping up appearances.
The question about these changes is, how much? How fast? People often talk about having a 6-month emergency fund, or a 1-year emergency fund, but what if that isn’t long enough? In this particular situation, and in this economy in general, I’d be extremely worried that it could take a very, very long time for the husband to find another job, and it may not be for anything near his previous salary level. If they just coast along trying to economize in minor ways, they could end up in big trouble. But if they were able to sell their house quickly, they’d free up a lot of cash that could significantly extend the time they can survive without anyone working.
Losing a job is a traumatic thing. People are scared and angry. They might feel a lot of self-doubt and shame. They want to put a good face on things, for themselves and for their kids, but also for the world around them: they don’t want to admit they’re in trouble. Each person’s situation will be different, but I think it’s important to take a hard, realistic look at your savings and budget and your prospects for getting another job, and then plan for the worst. I don’t mean to downplay the significance of a family having to sell their home and turn their lives upside down– it’s not the sort of thing you should or can do at the drop of a hat. But sometimes you just have to act sooner rather than later.
Back to my crisis plan: if I lost my job today, I’d probably give myself a week or two before I tried to find a short-term roommate, given that back-to-school timing would be key– at another time of year, I might let myself wait a little longer. I would immediately be emailing everyone I’d ever worked with to try to network my way into a new job or at least some consulting work, and based on some connections I have, I think I’d have a pretty good chance at getting at least some part-time income based on that. I’d also be keeping an eye out for any other job I thought I could do. If I saw a retail store with a “we’re hiring” sign, I’d apply, even if the money was far less than my current income. I’d probably take the first job I could get, and just keep looking for a better one. If I was unemployed for more than a couple of months, I’d also probably be talking about moving in with Sweetie and renting out my entire apartment. I’d rather make short-term sacrifices right away than have to make more drastic sacrifices after running out of money later. We’ll see if the family I mentioned above make the same choice.
