Emergency Fund

No Job is Secure

Not to scare you, but rather to suggest planning ahead and putting aside some savings. Back in the 1990s, I had a job that felt very secure and stable. Management put effort and money into developing the employees. They paid for my BS in business. We had good health insurance, life insurance, 401k with company matching, tuition reimbursement.

Life was grand.

Then someone far up the executive ladder had an idea. They sold off the part of the business I worked in and shifted to providing telemarketing services. I watched the company go from roughly 500 managers and 5,000 full-time employees with benefits to 500 managers and 5,000 part-time temporary workers with low wages and no benefits.

We felt secure, but in fact our jobs were never secure.

Think about limiting or reducing the bills you commit to long term. If you had to pay your expenses on unemployment or disability benefits, you’d probably be working with half your existing check. Can you pay the core costs of housing, utilities, food, and transportation on half your income?

Maybe your next car should be less expensive than you can currently afford, so you can still afford it in the event of a drop in income.

Avoid buying appliances on credit. Pay once, and you still have the item even if your income drops. Scratch and dent stores sell brand new appliances for far less than department stores do. Many of them are no more damaged than they will be anyway after a month of real life use.

Maybe the luxuries you’ve come to take for granted could be partly traded in for a regular deposit to a savings account. Being able to survive a layoff feels even better than a spa weekend or a weekly poker game.

 

 

Focus and Goals

Years ago I knew someone who was intensely focussed on the goal of paying off his mortgage very early. This is an admirable goal, but he was so intense about it, his kids were doing without and the family didn’t have any fun.

Goals need to stay in balance. Sure, make advance principal payment on a debt, but also go to the discount movies once in a while.

If you hyper-focus on building up a savings account, there’s a risk you might spend more on the credit cards. If you have to put a bit less in savings to avoid accumulating consumer debt, so be it. Keep the balance.

 

 

Ideals are Different From Goals

In a perfect world, Henry, age forty, might have his house paid off and ten thousand dollars in the bank in case he loses his job. Should these be Henry’s goals?

I think not, because unless he earns twenty bazillion dollars a year, they aren’t attainable in a realistic time frame. If Henry set these as goals, he would soon become discouraged. It’s fine to hold these as ideals, but goals should be attainable.

His short-term goals might be to reduce his expenses enough to make periodic principal pre-payments on his mortgage. To have a little money automatically transferred to his savings account from every paycheck. You have to start at the beginning.

Because people are only human, we need goals we can realistically meet, and meet them soon enough to feel successful.