My friend Steve called me this week; he had time on his hands, as he was spending the week on furlough from his job.
It’s a move that saved his job, but also scared him to the point that he picked up the phone with a simple question: “What have I done wrong?”
Steve knew the furlough was coming; all employees at his company had to accept two or three weeks of leave without pay, and they had some flexibility to schedule them. He took one as soon as he could and set the other one for the holiday season, thinking it would feel like a kind of “unpaid vacation.”
But before his first week was over, Steve was already nervous about missing one paycheck, with another to come; moreover, he was worried about what happens if this furlough system saves his firm’s employees only temporarily, so that there will be more forced vacations or worse, layoffs or job cuts in the not-too-distant future.
“I see the unemployment numbers, and I don’t want to be a part of them,” he said, “and all that this week has done is make me nervous. It’s not that I couldn’t make the bills this week, but it made me realize that I couldn’t go long without a job, and I’m worried about how long I’ll have one.”
Anticipating a layoff and actually living through one are two different things.
But the more you can anticipate trouble, the easier it is to get through. And as bad as a furlough is, a missed paycheck holds a lot of potential lessons amid the pain.
If you don’t expect a good severance package – and Steve says he has no idea what to expect if things at his employer go from bad to worse – and you lack a significant emergency fund or financial cushion, fear and panic come quickly to mind. Steve called after having talked to a number of co-workers whose own work anxieties raised his level of nervousness.
Surviving a layoff financially is tricky, but the preparations for it are a good exercise.
In fact, anyone can benefit from the preparation process.
Steve wants to get prepared, so he asked what he should do. That’s smart because there have been a number of surveys that show that more than half of all Americans say they could not go a month without pay before failing to meet some of their financial obligations.
Years of discussing this with financial advisers has made it clear that he needs to take a number of steps.
First is a review of where the money is going, a simple tally of all bills due, plus all regular expenses.
From there, however, the real issue is one of priorities and timetables. Without money coming in, it’s time to reconsider everything you are paying for.
The ultimate goal of those first two steps is a list that combines priorities with necessities.
Think of it like an action plan with several phases, starting with a short furlough – where there might not be much change – to what might have to go when you have been out of work for 30 days, to further cuts that kick in at 60 or 90 days.
Utility bills, for example, must be paid, but a family might be able to save money by bundling services, changing usage and more. That’s a Phase One cut, with eliminating services coming later.
Think of your layoff plan as making the decision on which of your expenses “gets a spot in the lifeboat.”
If you can’t survive with all of your expenses when the financial world casts you out in a lifeboat, you jettison the monetary anchors and keep the items that get you through with minimal professional and financial damage.
The more that can be tossed overboard early, however, the easier the entire process becomes; by casting off wishes and wants, your needs can be served a lot longer.
If, like Steve, you’re not in the situation now but fear it in the future, understand that any emergency preparations you make in advance – or any changes you can put in place early – will allow you to survive longer.
Financial advisers have varying advice on how big of an emergency fund to keep. In these times, when income may be in question but also when the stock market is making investors nervous, cutting back on investments, getting ahead on bills and building a war chest is important.
The plan should not just include changes in spending habits, but also a program for paying bills. Not wanting to jeopardize a credit rating, bills need to be covered on time, but consumers may opt to pay minimums; don’t be afraid to call creditors to see if due dates can be arranged so that the heaviest bills are not all due at the same time of the month.
What the plan should not include until the bitter end is more debt. By taking the steps necessary to stay afloat, the hope is to avoid sinking deeper into debt, so that the financial picture is no worse once the next job is in place.
The object – if periods of unemployment are inevitable – is to resume “normal life” without being saddled by years of payments for times when even paycheck-to-paycheck would have been a step up.
Stress test your plan by comparing the bills remaining through the various phases to your finances. With the expenses you choose to keep, see if you could pay off next month’s bills right now. The longer you could go without a paycheck – while being current on the remaining bills – the better prepared you are for trouble; the less time you can go without pay, the deeper your cuts have to be.
Chuck Jaffe is senior columnist for MarketWatch. He can be reached at cjaffe@marketwatch.com or at P.O. Box 70, Cohasset, MA 02025-0070.
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