In this economy, even if you think your job is safe, you’ve gotta at least have in the back of your mind, “What are some immediate steps we could take to dramatically reduce our monthly expenditures in the event of a layoff?”. While many companies offer severance for several months, there’s no guarantee that you’ll land a new job with similar pay any time soon, or ever. And many are not so lucky to be granted severance when being shown the door – consultants, blue collar, fired for cause, and many more (US Severance Packages are the worst amongst western nations). When severance expires or that day comes where the pay stops cold, unemployment is unlikely to cover your old monthly income, but rather just a portion. That leaves a gap between current income and future income.
Bridging the Gap
In order to bridge the gap that occurs between current income and future income to avoid cannibalizing personal savings, retirement savings, having to leave your home, etc., the first order of action should be to take dramatic action from a discretionary spending standpoint. When considering our finances, I looked at various categories of spending that we could live without and how much we’d save per month by taking aggressive action:
Monthly Savings if Cutting Down to Bare Essentials:
Newspaper subscription $31 - We could totally do without. I justify its existence since I read occasionally and the coupons we receive each week more than offset subscription. But I could probably find replacement coupons with minimal effort on Coupons.com.
Coffee $50 – This is clearly a vice that I partake in because money isn’t tight right now. If I’m dragging at the office, occasionally I’ll grab a latte, so yes, I’m guilty of the “latte factor” and I admit it. However, on weekends and vacations I go without, so I take some solace in the notion that I’m not “addicted” and can quit if needed (do I sound like a recreational drug user?). I save money on the morning cup by making at home and bringing in – buying twice in a day would be overboard for me. Regardless, it would be easy to drop it if financial hardship occurred – especially the premium office purchase.
Phone/Internet/Cable $40 - While I already save major bucks on my Comcast Bill (44% negotiated down!) and get all kinds of free premium channels etc due to the specific negotiation tactics I employ if I were laid off, we could quickly drop several additional services I am still paying for in some way. The HD would go immediately. The DVR? Could probably do without – and cable could go down to the bare minimum. I could probably drop another $40 or so without the premium stuff.
Lunches – $60 I generally eat lunch at my desk after buying from the company caf. I spend about 6 bucks a day for a wrap and a drink or something. If I weren’t working, I obviously wouldn’t be buying lunch everyday. I could reasonably average out a lunch at $3 per day with larger prepared left-overs, salads, etc. So, with a spread of $3 per day, that’s about $15 per week or $60 per month that I’m spending above baseline.
Eating Out $120 While we wouldn’t turn into hermits and forgo society altogether, we would certainly eat out less than the already paltry 2 times or so a month. If it’s the 5 of us, we’re usually at a Friday’s or Friendly’s or something more affordable. On the rare occasion my wife and I get out alone, we usually go somewhere a little nicer and easily drop $60-$100 with tip.
Entertainment/Movies $250 – Little gym, piano lessons, Adventure Guides, YMCA Activities, etc – $250 – While these activities enrich our childrens’ lives (and ours), during a pinch period, we’d have to sacrifice some of these costly activities and find other free/cheaper ways to give them a little something different. I’m a big fan of spending our money on life experiences over material things kids tire of quickly, but for a period of several months to a year, this would also be a prudent area to focus on.
Dry Cleaning $40 - While I keep expenses down by wearing polo shirts instead of business shirts in the spring/summer/fall and yes, I’m guilty of the re-wear on the pants, dry-cleaning still adds up. However, in this scenario, no job=no dry cleaning. For the one-offs that aren’t work related, we have a working iron. We just don’t use it much now, but we could.
Vacation $200 – While we don’t vacation every month obviously, we do go on at least 2 vacations a year and at least one is usually a relatively pricey shore house or lake house we get at a discount from neighbors (which makes the value overwhelming since they’re beautiful houses and memorable vacations). However, in the event of a layoff, it’s totally understandable to drop it down to 1 less expensive vacation. Spreading a few grand across a monthly allocation, we could easily drop an equivalent $200 out.
Groceries $100 - We spend a ton of money on food. I don’t get it sometimes, but it’s with some coupons and timed shopping included. But with much organic, growing children, a wife that loves to cook crazy meals, and with us entertaining friends and family somewhat regularly, we spend several hundred dollars per month on food. We could easily chop $100 out of there by cutting some more corners and perhaps entertaining a bit less given the circumstances.
Gas $40 – Without a job to drive to daily, there would certainly be a lower gas expenditure.
Overall LifeStyle Adjustment $150 – Since I didn’t capture every possible category above, we could easily make some lifestyle changes if necessary – perhaps my wife doesn’t hit the Picture People for a portrait of the kids as often (albeit, she never does so without a steep coupon), we could do without the matching new holiday outfits for the boys, less toys, less mall, things that nickel and dime the budget each month that would be very easy to cut out if mandated.
Total Budget Cut = $1081/Month
There are a few ways to look at this analysis. For the extremo-frugals out there, you’re probably thinking, “Well, you could go without all this stuff now. Just cut it out and stop living like a there’s no tomorrow!” On the other hand, there are those of you who would say even if laid off, you’d never do without some of life’s simple pleasures – after all, this is just a passing phase. From my standpoint, this was really just a first pass to give me a rigor level 1 assessment of what kind of burn rate we’ve have if that day did come. Would we need $3000 a month or live or $5000 a month? I mean, this can have a huge impact on what size my emergency fund should be, whether I’d have to consider eating into retirement funds, whether we could continue to pay the mortgage indefinitely, etc. With me at home, perhaps my wife could take up substitute teaching and tutoring since she was teaching before the kids as well. We have options – but it’s always good to know where you stand.
What’s Your Analysis Look Like?
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