Saturday, November 14, 2009

If (financial) disaster strikes

This article in the Wall Street Journal about people who continue to throw money at a lavish lifestyle. I totally fail to understand how people can burn through money on maintaining a lifestyle which is unsustainable and, quite frankly, have little if any sympathy for them. If anything, I feel resentful that the taxpayer will ultimately end up footing the bill for their irresponsibility. I also have to wonder how they are going to explain things to their children when the banks belatedly wake up to the fact that these people are bad credit risks.

How would I react if I lost my job?

Obviously, I would be disappointed, possibly even a shocked as it is relatively new position. Moving past that reaction would be my first task. Given that I would want references from my current employer, I would try to leave on the best terms possible. I would also explore the possibility of a part time position or extended notice period to give me time to look for another job. Even though the odds would be against either proposition it would not hurt to ask. (Actually, given that there would be a reasonable possibility of my next job being with a client, they would have an incentive to treat me nicely on exit.)

I would discuss with my wife. We are a team and would need to deal with it together. This does not mean transferring any of my angst on to her. It means we have to be on the same page when it comes to dealing with the financial situation.

I would prepare a cv (actually, it would only take a few minutes to update the one I used last year). I would draw up a list of recruitment agencies and companies to approach. I would also look into further education options and a personal development project to keep me busy if all else failed.

I would arrange replacement medical insurance if I ceased to be covered under my current employer sponsored plan.

I would not make early payments into our mortgage. With an interest rate of about 1% and prepayment penalties applicable until May 2012, we are better off investing the money than in paying down debt.

I would start cutting expenses immediately. The immediate targets would be:

1. eating out - less frequent an cheaper

2. wine - expensive wine is one of my few real luxuries. It would be chateau cardboard for me going forward

3. transport - I usually take taxis. Going forward, it would be mostly buses

4. holidays - we would cut to one holiday a year (a visit home to see my parents)

5. gym - I would cancel my gym membership as soon as I have used up the balance of my current block of personal training sessions

6. children - I would not cut the children's schooling or extra curricular classes, but I would cut back on some of the more costly entertainment options

There are a few other lesser items which could be attacked as well.

I have run the numbers and with these savings, I would be close to having a sustainable lifestyle. Close but not close enough for comfort.

The other option which is still up for discussion is my wife returning to the workplace.

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