MRO Today - Could your family survive a job layoff?

Could your family survive a job layoff?

by Susan Zimmerman

As the national unemployment rate continues to climb, more and more people are beginning to realize that anyone is vulnerable to the perils of corporate downsizing and layoffs. They're now asking themselves the key question, "If my spouse or I were to lose our job, how would we pay our bills?"

Think about your own financial situation for a moment. Do you have enough money saved to pay for your mortgage, car payments, utilities, groceries, credit cards and any incidentals for at least six months? For most Americans, the answer is no. And no matter how much they may try to deny it, deep down they know that missing even one paycheck would be financially devastating for their family's budget.

Unfortunately, current research shows that American debt is rising faster than savings. Today, the average credit card balance per household is $7,500, while the average 45 to 54 year old has only $2,600 in savings. Even more shocking, the Social Security Administration estimates that a whopping 85 percent of Americans have a true net worth of less than $250. With such figures as that, it's no wonder so many people are financially unprepared to survive a sudden loss of income.

Before a layoff strikes your family and threatens your financial stability, you need to take the steps to ensure your family could sustain through a time of lowered income. By proactively planning for such a scenario, you reduce the stress a job loss brings on and can focus your energy towards your job search efforts.

Develop your nest egg
The number one key to surviving a job loss is to have an emergency fund in the bank that could sustain your family for three to six months. If you're currently living paycheck-to-paycheck, or if you're in a specialized field where finding a new job could take longer, it's wise to err on the side of caution and strive for at least a six-month or longer financial cushion.

The question then becomes, "How can I possibly save that much money? I need every penny I earn just to pay my current bills on time."

Saving money is possible, and today it's absolutely essential. Whether you're one of the millions of people who live paycheck-to-paycheck or someone who simply has never learned how to save, you can make some minor changes to your perception of spending so you can accumulate your emergency nest egg sooner than you think. You'll then have the funds to survive any drop in income, should one ever occur.

1. Reduce your nice-to-have purchases
For most people, the distinction between must-have and nice-to-have purchases is blurred. They get accustomed to finer, more expensive necessities and eventually increase the frequency of such indulgences.

They believe they must have a new car every two years, a new wardrobe every season and expensive dinners at fine restaurants at least three times a week. However, just because things like commuting to work, clothing and eating are requirements for daily living doesn't mean we need to indulge in the best as frequently as we do.

As you build your three-to-six month financial cushion, look at the frequency of your purchases and see where certain things can be reduced, not necessarily eliminated, for the time being. For example, could you go out to dinner once rather than three times each week? Or, instead of buying trendy clothes for each season, could you purchase wardrobe accessories that can flow from season to season? If so, put the money you would have spent on those purchases toward your reserve fund.

The purpose is not to deprive yourself of the lifestyle you want, but merely to temporarily tone it down until you have accumulated the savings you need.

You can then sustain your lifestyle during any financial downturn. As you begin to analyze each aspect of your spending, you'll find instances where simply reducing your spending frequency can greatly add to your financial well being.

2. Discover your own spending triggers
When attempting to save money, many people fail to accumulate as much as they need because they allow impulse purchases to take over. They see an advertisement for a new product and can't resist its appeal. They then put most or all of their saved money towards the new purchase and begin the saving-only-to-spend-it process all over again.

To overcome this savings pitfall and build your nest egg, do research to determine what it is that makes you purchase impulse items. Walk though the mall, watch TV commercials and study print ads. However, instead of allowing the advertisements to affect your desire to have or not have the item, observe your reaction to the marketing piece. Does the ad make you feel deprived? Excited? Successful? Unsuccessful? Jealous? Happy? Next, ask yourself, "Do I want to be suckered in by this specific marketing tactic?"

When you become aware of the psychology merchandisers use to get people to make impulse buying decisions, you empower yourself to say no to these purchases and enable yourself to take greater control of your spending habits. Instead of feeling deprived for not making a certain purchase, you can feel privileged that you know your spending triggers and can choose to put your money towards a more important endeavor.

3. Become a master of walletless shopping
If you want to save more for your future, go shopping without your wallet and limit your ability to make an impulse purchase. Enter the store with a list of needed items and leave your credit cards and checkbook at home. Only buy those items on your list that you can pay for with the cash you have on hand.

If you discover an impulse item that you must have, write down what you want and its price on a piece of paper. Keep the impulse list of items for at least 48 hours. At that time, go back to your list and see if your emotion to buy the items is still there. Many times you'll discover that this cooling-down period will save you hundreds of dollars, as you no longer have the initial desire for the must have impulse item.

Sometimes the desire for an impulse item is so strong that waiting the 48 hours to buy it seems impossible. This is when you need to logically analyze the buying decision. Ask yourself such questions as, "Where will I put the item?" "Will I really be able to use it?" "Is there some lower cost or no cost way to have it?" "How often will I use it?" "Will the cost of it take me away from my other goals?" and "How many hours do I have to work to pay for the item?"

When you curb your buying emotions with money logic, you can often see the item's true price. At that point many people realize that their money would be better spent by applying it to their savings.

Six months and beyond
After you accumulate your six-month nest egg, strive to continue your new savings habit. Realize that even if you are fortunate enough to never use your emergency cash fund, you will still benefit by allowing the interest to accumulate so you can retire earlier or retire better. Take your savings a step further and speak with a financial planner so you can complete a retirement income needs assessment and get information about asset allocation. This will help add structure to your current and future savings plans.

When you are financially prepared, a sudden job loss or other drop in income won't be a stressful, scary time. You'll have the resources you need to provide for your family and you'll be better able to focus your job search efforts. By analyzing your current lifestyle and making slight modifications to your spending habits, you allow yourself to live a comfortable life while you invest in your family's long-term security.

Susan Zimmerman is a chartered financial consultant (ChFC) and a licensed marriage and family therapist (LMFT). She speaks to individuals and families on topics from financial planning principles to raising "fiscally fit" kids. She also speaks with other financial advisors. Susan is the author of the book The Power in Your Money Personality: 8 Ways to Balance the Urge to Splurge With Your Craving for Saving and the co-founder of Zimmerman Financial Group. She can be reached at or by email at .