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Financially Fragile. What do those words mean to you?
A few months ago TeamEOD writer Dr. Cabler wrote a post addressing the subject of being financially fragile. He gave the example that the majority of Americans would have to sell some of their possessions if they had to come up with $2000 within 30 days. I identified with the post because that described me for a very long time.
Something happened this week that made me think of this post again.
Major layoffs occurred within the company I work for. As the week progressed, the names of those affected spread. These layoffs hit very close to home as several people on my team were affected, as were many more within my immediate organization.
The close proximity of the layoffs has left me shaken.
I couldn’t help but wonder what the effect would have been had I been selected. Those laid off are given a substantial severance package which would keep my family afloat for a few months while I searched for a new job. While there are no guarantees, I’m fairly confident that I wouldn’t be out of work for long as there are several technology companies in my area that are hiring.
I felt a little better until I remembered that about 18 months ago I took out a loan from my 401K to consolidate a handful of smaller accounts. If my employment was terminated for any reason, I would have to pay back that loan immediately. I could default on the loan, but there are penalties associated with that, and the outstanding balance would then need to be counted as income on my next tax return.
Both of those options would put an impossible strain on our finances.
To make matters even worse, I can’t pursue other opportunities without having the same issue with the repayment of the 401K loan. Not that I feel like I want to take that route at this moment in time, but even if I did my hands are currently tied.
I suddenly feel very fragile financially.
Our goal is clear, we have to pay off that 401K loan as soon as possible. In the meantime, the only other thing I can do is to rededicate myself to my job (which I do enjoy immensely). I must do so to make myself as valuable to the company as possible as to reduce the risk of being selected if another round of layoffs should occur in the future.
How are YOU financially fragile? What are you doing about it?
Oh Travis, so sorry to hear about the layoffs at your company. Rick went through this 3 years ago, and yes, it’s horrible. First, watching his friends get laid off as the company spiraled downward, and then, having to make that call to me that he was on the latest layoff list. Terrible, terrible feeling. It’s part of what has inspired us to work to rid ourselves of debt so that we’re no longer “financially fragile”.
Fortunately, I don’t believe my company is spiraling downward – this is not uncommon. as they do layoffs every now and then for various reasons. This one just seemed to be more pervasive, closer to home, and for a different reason. It did have the same effect though, Laurie….more than ever I want to get us out of that “financially fragile” classification.
A layoff several years ago was the trigger for getting our financial house in order, so oddly I now have a little bit of a soft spot for the layoff that changed our lives for the better. Initially, unexpectedly losing the higher income in the house was terrifying, but that was only because we had no idea how much we actually needed to live or how long we could carry on with just the lower salary before things got desperate. A thorough evaluation told us if we cut a lot of nonessential spending we actually only needed 55-60% of our two income take home pay. With the higher salary gone we could carry on for a very long time on the lower salary plus some savings, plus any unemployement benefits he’d be entitled to. In the end he received over a year in severance pay and the job was replaced within a few months so financially we came out way ahead. The bigger change was that now we knew we could live just fine on only a portion of our salaries and we’ve never gone back to our old ways. Now all that excess goes to building up our retirement funds and extra payments on the mortgage. We used to hope we’d be able to retire at some point, and now we know we can retire early.
Now if one of us was laid off it would be a major inconvenience and a pain in the a%%. Similar to a tree falling onto your house or having a major flood. Not something you planned, an irritating extra task to deal with and which will likely take weeks or possibly months to resolve, but not the end of the world. If one of us were laid off tomorrow, we’d stop the retirement contributions and extra mortgage payments for the short term, and everything else would carry on pretty much as usual. Once a new job was found, everything would resume. Basically the only impact, other than the termporary aggravation, would be a corresponding delay in our early retirement because contributions were delayed for a bit.
I’m always impressed by how well you seem to have your finances structured, JMK – I always enjoy hearing from you, and it encourages me to continue to strive to do better. One day I will have our family in a similar position – and I hope you’re still around to read about. 🙂
Thanks Travis. I probably sound like a boring broken record, and the funny thing is most days I feel like there is always so much more I could be doing. It’s weird how you often forget how far you’ve come and only see what still needs work.
Last night we went to a restaurant. Not a big deal for most people but since we generally only go 4-5 times a year and we’ve already done those anticipated family events, I found it a little distressing to feel cornered into a expense I wasn’t expecting and don’t value. A relative was in town for the weekend unexpectedly so 12 of us met at a restaurant. The alternative I suppose would have been to invite everyone to our place, although feeding 12 people probably would have cost as much as the restaurant for 4. I couldn’t suggest a potluck since the whole idea of the restaurant was that we could have a visit without causing anyone work.
I did what I could to limit this unexpected expense. I review the menu online in advance. I located 2 coupons that we could use if we divided our family’s order onto two bills (one coupon per bill). I had a large glass of water before we went so I wouldn’t deviate from my plan due to hunger. How did we do? DH took the waitress up on the offer of a 1/2 price appetizer (picture me making signals across the table to let me pick the appetizer and make it my dinner – he missed my waving and ordered something for himself). Then instead of water as we normally do, he added on an iced tea. That may be a cheap option in some areas, but around here that’s a $2.99 add on. Then our 11yr old decided she was too hungry to eat from the kids menu and got the adult sized meal, and now the kids drink she’d ordered is an extra that’s not included in the meal. The entire ordering process completely went off the rails. In the end, tip included we dropped nearly $80 for a mediocre meal. We had a great visit and I suppose I should focus on that since it was the point of the evening. But in the back of my mind that wasted $80 really bugs me. When you’ve been doing the frugal thing for a very long time, you really resent having to spend on stuff you don’t even value. When we got home I added a row to the spending plan and added in the restaurant amount. On Friday when I do the weekly transfer of the excess in the account to our retirement funds, I’ll know in my mind it’s short by $80. In order to save my sanity, I am NOT going to plug $80 at 5% x yrs to retirement into an investment calculator and figure out how much that dinner really cost. I’m sure I’d have retroactive indigestion.
Yeah, I’d skip the retirement calculator thing too….A person could drive themselves nuts knowing how much the purchase of everyday items cost them in retirement. You do need to enjoy life *just a little* now. 🙂
A worthwhile exercise for each of us is to imagine the effects of a sudden, unexpected job loss. Few are set up to keep the bills paid on only one income, and many households are single not double income. This highlights the need for an emergency fund and perhaps an emergency ‘battle plan’ to dial down every non-essential expense. It also pays I think to keep the resume tuned up and to always be actively engaged with your network. I find it a turn off when a former colleague I haven’t heard from in years suddenly reconnects (say on LinkedIn) under the guise of ‘hey, just wanted to reconnect,’ but then they eventually get to ‘say, I’m looking for work right now…”. Better to stay engaged all the time!
I LOVE the concept of an emergency “battle plan!” If we were to lose an income for a time, even if we had a very large emergency fund, it would be foolish to simply keep living as we were, spending at the same rate. We would want to dial down our lifestyle big time until the income was replaced. Thanks for the thought, Kurt!
Ages ago I read a post about creating a document listing out all the items that would immediately be canceled should there be a job loss (or other major financial event). Doing the reasearch in advance of the situation means, should it every happen, you are armed with a list of all the services/bills which could be cut off or suspended immediately without incurring a penalty so large it makes cutting the service redundant. Cell phones plans are often impossible to quickly cut off, but perhaps your cable can be cut or suspended for a few months. The newspaper deliver stops immediately. Gym memberships can often be put on hold for a few months. Your “regular” items will differ and so will the conditions on cancelling or suspending them. The point is to do your research in advance of needing to put the cuts in place. Locate all the account and customer service numbers. When you are caught off guard by a layoff, digging through your old bills to figure out what can be quickly cancelled might seem overwhelming; but having an emergency response plan already in place gives you a focussed list to do on Day 1.
You and Kurt have together managed to inspire me to create my own battle plan. It could even be a post!
yeah, I was let go during a company merger almost 4 years ago and was back to work 6 months later but we are still trying to reestablish our financial footing. I think people really underestimate how long it takes you to rebuild after a job loss. The unemployment helped us not face catastrophic loss like foreclosure. Good luck to you.
I’m glad to hear that things didn’t reach the catastrophic level for you Stephanie, and that you did eventually find work. In the job market we’ve had over the last few years, it could have been a lot worse. That being said, I’m sure it was a very difficult time for you. Your comment really emphasizes the importance of the “financial battle plan” that Kurt mentioned above – because you never know just how long you’ll be out of work. I’m very thankful to still be employed, but I think I need to take this opportunity to make sure we have a plan if such an event would happen, and work to put us in a better place to make such a hardship easier to get through.
Thanks for sharing your experience, Stephanie!
As long as you have good safeguards in place with your curent assets (versus earnings), I think it’s a good reality check to realize this–I had a similar experience earlier this year and it was helpful to get my finances in better order.
It’s going to take awhile to chew down that 401K loan, but I tell you what….I used to be a fan of being able to take out a loan from my 401K if it bettered a person’s financial picture. I didn’t realize this little nugget of information (need to pay it back if you leave the company) until recently. Seems like much more thought should have been put into taking that action….
Thanks for stopping by, Mike!
My company is outsourcing some work and all overtime has been eliminated. It has been a very scary time and the only thing that has protected my job is the fact that several people in my department are pregnant so it seems I am safe for a year.
I am using that maternity leave year to try and become less fragile financially. I wouldn’t last long if my pay cheques stopped coming. I am a single mom and I can only rely on myself for everything. I am happy being single but it would be great to have some back up in case something does happen.
Yikes, Jane…..do you think maybe it would be wise to start looking for a different position, or do you see things changing in the next year such that you may have better job security???
I have been at my new job for about 2 1/2 years now and have finally brought my sick time up to 200 hours. If something bad happens to me I can take off an entire month of work with pay. I hate it when people use sick time to go out and enjoy themselves. What are you going to do when you are actually sick and you get no paychecks? I sleep better at night because of this.
That’s great news for situations for which you can use your sick time, Zimmy! I assume your employer lets you stockpile your sick pay? Not every employer allows that – so that’s definitely a plus! How about if you were to lose your job, are you prepared for that kind of emergency?
It’s been a long, long time since my finances were that “fragile”. I don’t miss those days! But I can still relate to the layoffs. Every few months my employer announces another round. No one really wants to be laid off no matter how much money they have saved up.
Yikes, SB, every few months?? Are you in any danger of being hit?
Hey Travis,
I really enjoyed your post because I think almost everyone can relate. The economy remains unstable and nobody is immune to the threat of layoff. You were very fortunate to have made the cut, but there can be survivors guilt for sure. I think you are smart to use this as a catalyst to increase your efforts of becoming independent from loans of any kind. Good luck!
Every night before I fall asleep I close my eyes and think about the things for which I am most thankful. Recent events have made those nightly moments all that more meaningful. After working so hard to put my family’s finances in a better place, we have found yet another way I have tied our hands – and that’s what make me most angry about this whole situation. But you know, Suzanne, at the end of the day a person has to identify what they DO currently have control over – and at this point what I can do is walk into my cubicle every morning and work my ass off to be the very best software engineer that I can be. Every. Single. Day.
And then hope that everything works out.
Financial freedom is going to feel sooooooo freaking awesome.
Lay offs are tough especially when they hit that close to home. I makes you realize that no one is safe in the I will work and earn money at a company. If my wife was laid off today we would be ok for 6 months without changing anything. 9-12 months if we cut back. We have seen things like this happen to people and never want to be in that situation.
Sounds like you are in a great position, Thomas – good for you! Seeing people you know go through such a thing sure does make an impact, doesn’t it?
Hi Travis,
I found your blog through Mr. Money at Budgetsaresexy.com! I thought I’d share our story with you. On January 1st, 2011, we made our first mortgage payment on a newly refinanced home. The term of the loan was 15 yr./3.75%/$244K. I’m the Executive Financial Officer in our home and my husband gave me the green light to do with our money what I thought would be best. I began making extra principal payments with that first mortgage payment. To make a long story short, we put every cent we could and used a good portion of our savings to pay down this loan. On March of 2013, our mortgage balance was $78K. We then sold our “paid for” rental property (two family house) to our two young adult sons. On April 13th, 2013, my husband and I walked into our local Chase Bank office and paid off our mortgage. What a liberating feeling that was! Two days later, we also paid two car loans and I am (we are) proud to say that we are debt free! This past May, my husband lost his job and we cannot help but to feel relieved that we can weather this financial storm because we do not have any debts. Now, we are trying to do everything we can to keep our expenses down in order to continue to save money on one income.
P.S. After collecting the rent from the upstairs apartment, our sons’ mortgage is $100!
I’m so glad you found your way over here to Enemy of Debt! I cannot imagine the feeling of walking into the bank and paying off a financial weight that most people feel their entire adult lives – Kudos to you!!! Thanks for sharing your story, and I hope you’ll keep coming back here and reading/commenting. I’m always happy to connect with new people and find new blogs to read – looking forward to checking yours out!
I just realized that you didn’t leave a link to your blog (do you have one?) – or do you have a Twitter ID I could follow? I’d love to follow your story if you’re writing about it!
I do not have a blog, but I am a big fan of financial blogs. I look forward to reading more on your blog!