Be prepared to lose your job

Whilst there’s not as much doom and gloom around now as there was during the global financial crisis (GFC) of 2009 the world hasn’t returned to over-brimming confidence. Recent natural catastrophes plus instability in the Middle East have dented the return to confidence.

Don’t worry – I’m not dragging out my dusty crystal ball and predicting an imminent recession.

Which is why now is the perfect time to make plans for if you do lose your job at some time in the future.

Waiting until gloom is upon us often leaves not enough time to squirrel away your chestnuts.

That is what happened pre-GFC. People had been:

  • Borrowing up to their eyeballs expecting continuing pay rises and asset price increases to keep them cosy
  • Spending everything they earned and more

Then the GFC hit and many people were stressed about how they would survive if they were retrenched. Many who did lose their jobs struggled to survive and had to rely on selling assets and the generosity of others.

That kind of financial and personal stress wreaks havoc on your quality of life and relationships.

But it doesn’t need to be that way. When you have your financial affairs in order losing your job can be just a blip on the journey.

How to prepare for retrenchment season

Last night in my DIY Wealth Creation course we talked about risk management. Two ways to manage risks are to minimise the likelihood and to minimise the consequences.

Emergency savings minimise the financial consequences

If you have plenty of easily accessible savings then you can use these to keep food on the table and avoid the bank knocking on your door about missed mortgage repayments.

I recommend having at least three months’ worth of total expenses squirrelled away for emergencies. If in your line of work you think you could be out of work for longer before getting a job then put away more.
By total expenses I include everything: all loan repayments including credit card as well as your lifestyle expenses.

That recommendation assumes you know your expenses. So if you don’t know how much you spend then start working that out. The knowledge will both help you plan and also help you survive if misfortune strikes.

Keep the savings liquid

You need these savings easily accessible and cash is the most liquid. But if you have a home mortgage then your cash could work harder if it was reducing your loan interest. After all you don’t expect to use this amount – only if a true emergency arises.

So I recommend saving your three months’ worth of expenses and making an additional loan repayment. Then if misfortune strikes you can redraw that amount. Don’t see the available redraw and be tempted to use it for a holiday!

If you don’t have any personal debt then a high interest online savings account is a great spot. Have a separate account for emergencies than for your other savings (such as holidays).

Whilst shares and many managed funds are liquid the economic situation that may lead to your retrenchment may also be a time when you don’t want to be selling investments. So I suggest you don’t invest you emergency savings.

Professional development minimises the likelihood

You can minimise the risk of retrenchment by ensuring you are very employable.

You can do your best to ensure you are so valuable to your employer that you are one of the last to be let go.

But if your company or project closes then retrenchment may be unavoidable. In that case you want to be one of the first people snapped up by other employers.

Professional and personal development is essential in today’s world to ensure you continue to be very valuable to your employer and your industry. Is it time to brush up on your expertise or even expand it? Maybe your networking and relationship building could be polished? Those networks could help you get your next job.

Professional development also makes sense for wealth creation. It should help you increase your actively earned income, which you can then spread between increasing your lifestyle and your investment.

Don’t max yourself out

You can also minimise the consequence of losing your job by not maxing yourself out in the first place. Stress test your major lifestyle and investment decisions before committing to implement them.

For example: don’t borrow the maximum amount the banks will give you. Leave yourself a buffer both in interest rate increases and other costs.

Need help saving?

If you need help saving up for emergencies like this then talk to me about cash flow coaching.

Author: Matt Hern

Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor. He is passionate about guiding you on the right financial choices to achieve what you really want. Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.