Budgeting for Layoffs? 186
The Waxed Yak asks: "After reading the Slashdot tech worker unionization story, I started wondering: What are other IT workers doing to prepare for potential layoffs?"
"We're all at risk of it, be it from actual layoffs or loss of employment for other reasons. My personal approach has been to live off about 1/3rd of my earnings and bank the rest, even though that means living in a hovel and driving an older car. Worst case scenario, I get to retire early.
I recently became completely self employed, which has made it all the more important to save. I understand many Slashdot readers have families to support, so they don't have the same option for savings that I currently enjoy. As I hope to have a family to support in the near future, I would be interested in tips or techniques to prepare for this situation. Judging by the posts in the unionization thread, many of you are dependent on a steady income to provide for their families. Hopefully this thread can provide some ideas for them as well."
A few key things (Score:3, Informative)
- Know what's going on in the job market. For me, that includes jobs in my hometown and network management (netcool, concord, cisco, etc) jobs anywhere in North America.
- Apply for jobs even if you think that it may not be a good fit for you. At least it provides good experience in writing a resume and cover letter, and possibly interview experience as well.
- Keep a minimum balance in a bank account, say $7000. These are emergency funds, and I think being laid off counts.
- If your company has a share ownership plan, get out if it, or at least make routine transfers out to another account. If the company is considering layoffs, there is a good chance they are not performing well, and that includes stock price. The last thing you want is to be hit with a double whammy of being unemployed and seeing your retirement income evaporate.
- Whatever training you can get at your current job, take it.
- Lastly, try and stay positive. Enjoy life to the fullest outside of work.
Re:Budget (Score:5, Informative)
Look into how a bank makes loans, and what it does with your money when you "save" it with them. They don't keep it locked in a vault for you, like money under a mattress; they loan it back out to people, and pay you out of their fractional reserves when you come calling.
In essence (and I'm glossing over a lot of my Monetary Policy class in college), the bank is making an investment on your behalf. They charge a higher interest rate to the loan recipient than they pay you to keep your money "saved" with them -- this is how banks make a profit.
I mentioned being paid out of the bank's fractional reserve. Because the bank has loaned-out money to people (businesses and individuals), it doesn't have everybody's money at the bank -- it's out being spent by somebody else who thinks they can turn a profit and pay back the bank with the money they make. What happens if everybody goes to the bank and demands their money back, and the bank doesn't have enough available -- i.e., what happens if you see a bank run? Your bank borrows what they need from other banks. Worst-case scenario, they go to the "bank of last resort", a.k.a. a Federal Reserve bank. The Fed waves a magic wand (seriously, it is not transparent enough for anybody besides the Fed to know precisely what they are doing), buys/sells bonds through "open-market operations", and as necessary, creates new money -- which causes inflation. In essence, if the Fed can't handle a bank run (the last time this happened was just prior to the Great Depression, and in fact, is considered by most economists now to be the reason the Depression was as bad as it was), we're all hosed. That said, since the Depression, it has handled some monstrous ones (including Russia's failure to repay its bond commitments, which led to the decline of the Ruble, causing the collapse of some big-name financial firms like Long-Term Capital Management [wikipedia.org]). (OK, I'm not glossing-over as much Monetary Policy as I thought I would...)
Here's a dirty little secret about the FDIC, which insures the money you "save" at the bank: the FDIC only insures about 1-2% of the nation's fractional reserves. Hence, no matter how you slice it, If another Depression-style bank run occurs, we are all fucked.
In truth, savings and investment are considered more-or-less the same thing by economists today, because in the end, they *are* the same thing.
Yours,
A youngster who "saves" in mutual funds... (and in a high-rate savings account, and only what is necessary for paying bills from a checking account. Most of my savings are in my 401k for retirement though...)
Been there, done that (Score:3, Informative)
When you're unemployed, you need to lower your (cash) burn rate. We reduced unnecessary car trips, eating at restaurants, and most entertainment. We also shopped for food bargains and used coupons. We had several services we subscribed to on a monthly basis. Only those that were absolutely neccessary stayed. We kept internet access, as that was needed for my job search.
We substituted free entertainment for the movies, trips, etc. That included bicycling, local parks, and books and DVD's from the library. One unpleasant surprise expense was health insurance. Companies are required to offer COBRA coverage (i.e. you get company health insurance for 18 months, but your pay. They set the price). Family coverage cost $900 per month! Had I continued to be unemployed, we would have had to switch to a (non-employer) cheaper 'hospital only' plan.
I'm working now (ironically at the place that layed me off). My wife has re-trained (outside of IT) to provide some employment diversification. My daughter has changed her career objectives to avoid IT.
If you're in IT, accumulate sufficient savings, prepare a contingency plan, keep your resume up to date, monitor your cash burn rate. Don't over-invest in your company's stock. Don't live beyond your means, or paycheck to paycheck. If you're thinking about entering the IT field - don't do it.
Re:If you're self-employed, you're not laid off. (Score:3, Informative)
Saving/Investing is, in that sense, a bit like engineering. You do your best to make a good decision with incomplete information. There's no way to know what will happen in the future, so you make the best decisions you can and try to recognize the various risks and account for them somehow.
Another quote I like: Making predictions is a tricky business, especially when they're concerning the future.