Reducing Financial Impacts of a Job Loss

My wife was recently notified that the preschool she teaches at for a few hours a week is shutting down. It got us thinking about a more difficult scenario for us - the loss of my job. Given its by far the most significant income we have we'd be in a world of hurt rather quickly if something happened.

One of the things we have been working over the years is to expand our multiple streams of income as this is by far the best way for us to divert a potential disaster. Reduced reliance on a single income could be a huge safety net for us. However I recognize we are not in a comfortable position yet.

Ideas for Immediate Actions to Minimize Financial Impacts From a Layoff:

  • Cut Cell Phones: We'd take a hard looking at canceling our cell phone plan or at a minimum put them on reduce rate suspend to minimize expense.
  • Reduce Internet: Internet ranks up their with food and energy in our household so not sure we could cut it out completely, but we could reduce our service level a bit to cut our bill.
  • Discretionary Spending Lockdown: Change our spending mode to only purchase basic groceries and gas. Get family agreement we aren't going to spend money on anything else till we get in a better position. Would need a better long term plan but this should be a reasonable immediate reaction I think.
  • Eliminate Eating Out: All meals made at home for the time being. Again long term would likely need a better plan, but think this is a reasonable short term action.
  • Switch to High Deductible Insurance: We are currently on the most expensive health insurance plan through my employer because my wife and I regularly need medical care for chronic conditions. We'd take a hard look at switching to a high deductible plan recognizing we'd likely need to make some sacrifices in terms of the level/regularity of care we current receive.
  • Stop/Reduce 401k Contributions: With a job loss comes the immediate need to conserve cash and with any remaining paychecks I want to maximize our incoming cash. I think if we were faced with a job loss the immediate needs are more critical than long term. I would at a minimum drop my contributions down to the company match level and might cut further if we thought we needed to.
  • Stop Roth IRA Contributions: We currently contribute roughly $800/mo to our Roth IRAs. Again same as 401k - our immediate needs become key and I would stop contributions to conserve cash until our income situation recovered.
  • Cut Additional Principal Payments: I would shift focus from eliminating debt to retaining as much cash as possible and not paying anything above the minimum debt service payment required.
  • Cut Back Thermostat: This would be a tough adjustment for the family, but I'd propose we cut our thermostat back to say ~60/winter, ~80/summer. It would be tough on all of us, but I think we could manage and I would need to negotiate a family agreement to make this sacrifice to minimize our energy bills.
  • Reducing Driving Trips: Today we run errands as they pop up because we are busy. With a job loss I'd think we should really focus on optimizing and planning our trips to avoid additional gas expense.
  • Stop 529 Contributions: I'd immediate pause our 529 contributions until our income situation improves. It is a cash conservation measure and I would look to make up lost ground when our income situation improves.
  • Drop Umbrella Insurance Policy: I'd be willing to take more risk in the name of conserving cash and look at dropping our umbrella liability insurance policy until our situation improves which would save us about $200/yr.
  • Stop DRIP Investments: We put $25/mo towards a Connoco DRIP. I'd immediately stop our DRIP investments until our situation improves.
  • Collect all dividend payments: A temporary income boosting measure - I'd switch all our dividends to cash payments vs dividend reinvestments.
  • Change Witholding on Remaining Paychecks: As a short term cash boost I could alter my witholding to boost incoming cash. This could cause longer term pain if not planned properly and we end up owing the government more money, but this tactic could help with short term from a cash management perspective.

Making the Most of Time
The one positive of a job loss would be additional time. I am currently very time poor and I believe it would be critical to use the newly found time wisely to minimize our income loss and focus on restoring our major source of income.

Other than putting sharp focus on the job hunt, I could see these areas as potential opportunities to invest time:

  • Have wife expand her side income (tutoring/preschool teaching) while I take on more housework.
  • Invest labor into increasing energy efficiency of our house to reduce expenses (ex additional air sealing, etc)
  • Expand our garden to grow more of the food we eat.
  • Part time jobs - I hopefully wouldn't hesitate as a stop gap to pick up a lower paying part time job.
  • Sell stuff on craigslist - It would be a good time as any to do some serious purging in the house and try to raise a little cash from those items we want to get rid of.
  • Extreme couponing - I enjoy doing a bit of extreme couponing, but its not something I spend a lot of time doing currently. I could invest additional time in tracking coupons/sales to further minimize our food expenditures.

Any other ideas you would add to these lists?

01/26 | StumbledUpon | del.icio.us | Digg This | Comments (2)

Reduce Home Energy Costs

Regulars readers know over the past couple years I've had some focus on trying to reduce our household energy costs. We moved into our current home at the end of 2008 and it didn't take long for me to realize we bought ourselves a money pit when it comes to energy usage.

We current live in an approx 2,600 two story traditional single family house on a crawlspace foundation with a 1994 gas pack HVAC downstairs and 2003 heat pump upstairs. We also have a circa 1994 electric water heater located in the crawlspace and a well for our water. My wife stays at home with my daughter during the day, otherwise our energy usage profile is probably very typical for an average American family.

Our energy improvement efforts began soon after we moved in and received our first utility bills. Heres a high level summary of our energy efficiency efforts:
2009

2010
  • Smarthome system pilot (07/2010-11/2011) which allowed us to have an equivalent water heater timer
  • Added additional insulation and weatherstripping on our attic hatch
20112012
  • Resealed HVAC ductwork with mastic
  • Additional weatherstripping on attic hatch to fully seal door
  • Rigid foam board insulation on top of water heater

Annual Home Energy Costs
Recently I totaled our total electric, propane, and natural gas utility bills by year to see if we could notice a significant improvement in our energy cost:

Our Annual Home Energy Costs

2009

$ 2,797.77

2010

$ 2,992.30

2011

$ 2,685.78

Initially I was surprised that there hasn't been more of a noticeable energy savings looking at our utility bills. So I dug in a little further to understand our energy consumption which turned out was pretty consistent with our energy costs.

 

Electric Kwhs

Propane Gallons

2009

14308

937.82

2010

16427

956.93

2011

14809

833.38

I've mulled it over a bit more after trying to explain the lack of obvious progress by offsetting factors like our expanding household, average temperatures, energy costs rising, and the onsite storage vs pay at consumption with propane which results in lumpy propane consumption and costs. I also need more years to get a better measure of overall improvement as many of the improvements in 2011 were done towards the end of the year and won't have a full impact on our annual energy costs till 2012 is complete.

I'm still just as focused on getting a significant long term improvement in our energy usage, but its clear it is going to require a lot more work to get there - there is no silver bullet.

01/23 | StumbledUpon | del.icio.us | Digg This | Comments (3)

Time Is Money

While on our transatlantic cruise our dinner table companions were 2 couples in their late twenties/early thirties that had quit their jobs and were trekking around the world. We had some great discussions about life and I gained a lot of insight in to how to travel more frugally.

One thing that stuck with me was the paradigm they operate in when spending money. They viewed time as an abundant resource as they had a lot more time than money. The decision criteria they used is very different than ours these days in which I consider us very time poor.

These globe trekking couples happily trade time for lower expenses in their journeys. Often they would go out of their way to trade a lot of time (sitting in the airport on standby, taking a local bus or walking versus taking a taxi, etc) to save just a little money in their travel.

It was really refreshing for me as I currently have a completely different view on time. I am time poor and now regularly make decisions to save time even if it costs me more money. Applying this to our financial freedom its a good reminder that when we get financially free, time will be an abundant resource and money would likely be a much more limited resource. We would likely make very different decisions when we are financially free compared to our current, very time poor, lives today.

It kinda reminds me of a propaganda sign that I often saw while we were on our temporary assignment in Shenzhen, China:

"Time is money, efficiency is life."


01/16 | StumbledUpon | del.icio.us | Digg This | Comments (8)

2011 Passive Income Summary

Here is my annual look at our passive income. I've historically focused on dividends, but I bought my first fixed income asset this year so I'll include it in the review.

Our dividend income improved in 2011, but it was less than anticipated and as a result a disappointing year for me. We peaked our dividend income in 2008 and we are still trying to catch up and then continue to build past those income levels. After all passive income from stocks/bonds are a critical part of our financial freedom plan.

Our dividend income increased about 10.6% in 2011. Its decent, but we'll need to increase at a higher annual rate to generate the income we'll need in the next 10 years if we stick to our current financial freedom plan.

Here is a look at our annual dividend income in 2011:

Annual Dividends
Investment 2008 2009 2010 2012
Sold off Equity Holdings $ 576.28 $ 135.81 $ 29.44
Pepco $ 22.67 $ 22.68 $ 22.68 22.68
Argo International $ - $ - $ 10.84 $ 14.63
AT&T $ 20.80 $ 21.32 $ 21.84 $ 22.36
Bank of America $ - $ 1.00 $ 6.65 $ 20.15
BP $ - $ 11.02 $ 9.40 $ 16.80
Connoco $ 44.78 $ 106.56 $ 156.58 $ 211.65
Chevron $ 34.16 $ 37.17 $ 41.19 $ 46.35
Duke Energy $ 100.98 $ 111.83 $ 122.30 $ 131.90
Edison $ 15.57 $ 16.35 $ 17.28 $ 18.16
ExxonMobil $ 80.66 $ 88.24 $ 94.80 $ 103.31
Fairfax Financial $ - $ - $ 260.00 $ 450.08
GE $ 114.97 $ 102.07 $ 199.00 $ 281.29
Healthcare SPDR $ - $ 173.76 $ 175.93 $ 200.42
IBM $ 555.74 $ 520.33 $ 394.42 $ 241.02
Lowes $ 14.59 $ 15.72 $ 18.28 $ 23.10
Medtronic $ 53.74 $ 68.70 $ 76.82 $ 84.97
Merck $ 212.83 $ 222.68 $ 229.84 $ 229.84
P&G $ 46.94 $ 53.52 $ 60.49 $ 68.03
Pfizer $ 972.66 $ 255.60 $ 247.48 $ 114.96
Radian $ - $ - $ 1.14 $ 1.52
Spectra $ 45.07 $ 49.54 $ 51.97 $ 53.15
Microsoft $ 0.75 $ 0.86 $ 0.93 $ 1.17
Johnson & Johnson $ 16.13 $ 17.88 $ 20.21 $ 65.09
Union Bancshares $ - $ 6.00 $ 25.21 $ 39.30
VXF $ 66.84 $ 55.31 $ 62.46 $ 1.75
VWO $ 108.32 $ 52.62 $ 79.73 $ 99.23
VTI $ 96.93 $ 337.00 $ 370.01 $ 419.20
KBE ETF $ 92.58 $ 208.17 $ 68.17 $ 198.78
Total $ 3,293.99 $ 2,691.74 $ 2,875.09 $ 3,180.89


Fixed Income
In 2011 we invested in our first fixed debt instrument - a "bond" traded on the NYSE of an insurance company - Markel. This "bond" pays 7.5% annually at face value and we've basically picked up small quantities when it was trading around or below par - $25/share. I've started toying with this even though debt yields are very low currently because we'll need to significantly increase our ownership over the next 10 years to add additional passive income to meet our financial freedom plan. When the return vs risk calculations improve we'll be evaluating heavier investments in this area.

Fixed Income
Investment 2011
Markel Debt $ 164.06


01/11 | StumbledUpon | del.icio.us | Digg This | Comments (7)

2012 401k Contribution Limit

The 401k employee contribution limit has finally had its first increase in 4 years in 2012. I historically max out my 401(k) contributions so I'll need to tweak my contribution levels to ensure I hit the max by the end of 2012.

401(k) Contribution Limit Catch-Up Contribution Limit
2012 $17,000 $5,500
2011 $16,500 $5,500
2010 $16,500 $5,500
2009 $16,500 $5,500

01/09 | StumbledUpon | del.icio.us | Digg This | Comments (0)

Last 15 Personal Finance Entries


01/05/2012 | 2011 Net Worth Review
01/04/2012 | December 2011 Net Worth Update (+$18,477)
01/01/2012 | $75 in Sharebuilder Bonuses
12/23/2011 | Year End Tax Harvesting
12/23/2011 | Investment Performance November 2011 (-0.39%)
12/19/2011 | More Savings on our Transatlantic Cruise
12/16/2011 | Transatlantic Cruise Cost Summary
12/12/2011 | November 2011 Net Worth Update (-$12,639)
12/05/2011 | Thoughts Midway Through Transatlantic Journey
12/01/2011 | Free Money for your Holiday Shopping
11/30/2011 | Biggest Cost of Raising A Child
11/27/2011 | Black Friday Shopping Highlights
11/21/2011 | Investment Performance October 2011 (+9.88%)
11/17/2011 | Wrong Name on Airplane Ticket
11/11/2011 | Mid-Way Point in Our Journey to Financial Freedom

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