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?

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Comments (6)

This is a great list and a great exercise. We are more balanced in our incomes - maybe a 60/40 split between me and my wife. Our expenses are actually quite a bit lower than my wife's income, but we add a significant amount of giving on top of that which brings our actual "expenses" above the level of her income.

Our only real mandatory expenses are rent, food, car insurance, gas, and irregular expenses like clothing and toiletries and such. All of our utilities, internet, satellite, etc. are included where we live; we both have insurance through our jobs, though if I lost my job we'd have to find an individual (HDHP) plan for me (my wife's already on an individual HDHP plan through her work which we could just pay for ourselves if she lost her job). The only real cuts we can make would be in discretionary spending (we're already both pretty frugal, but could definitely save $200-$300 a month on discretionary spending including food and entertainment if necessary). We'd not likely invest much either to try to keep a cash cushion.

I like your ideas of combining trips, selling stuff on craigslist, and gardening. I like to ride my bike for local trips/errands. I'd be interested in Craigslist arbitrage, but that would require a lot of driving when buying stuff.

In reality, my wife and I both have the skills, intelligence, drive, and network to find new jobs fairly quickly if we had to, and we have family support to float us by if we found ourselves in serious trouble.

Posted by Jonathan | January 26, 2012 1:35 PM

Couple things. First, would be real nervous about changing withholding. Yes, short-term cash gain, but real risk down the road if not calculated properly.

Second, I suppose its an obvious thing, but I'd go all out on linkedin, calling in every favor from anyone I know.

I'd actually be nervous about cutting cellphone entirely, as it would be needed for the job search, but would definitely go down to the minimum plan allowed.

Finally, would work part time at Starbucks. Love coffee anyway, and if you work a minimum of 20 hours a week you qualify as a full employee and get health benefits.

Posted by farmland investments | January 26, 2012 9:22 PM

I don't understand when you said: "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." How can you owe the gov't more money? You pay the same tax in the end regardless of whether you pay more up front or postpone until tax time to make up the difference. Do you mean you might incur a tax PENALTY by not paying enough up front? I'm confused.

Posted by Steve | January 27, 2012 8:18 PM

you've obviously never been out of work. first of all make sure you collect all unemployment insurance payments you can. sometimes with a layoff and severance it is challenging to get paid right away. also sometimes part-time work is not worth it because of the impact on unemployment insurance. plan a budget for multiple months and don't expect to get a new job right away. carefully plan how to handle any severance. figure out a health insurance plan first as it will likely be the biggest and least flexible expense. do NOT cut back on insurance where you cannot afford to pay for a loss. you have a safety net for a reason, don't take a short-term risk to save a small amount. likewise figure out that marginal changes in heat and air conditioning are inexpensive and not worth the negative impact on comfort. make finding a job your full-time job.

Posted by bob | January 28, 2012 12:34 AM

This is a great list. I think one has to assess how quickly they can find another job. Usually a home is the limiter in a country wide job search. I'd like to hope I could quickly relocate for another position.

Posted by BusyExecutiveMoneyBlog.com | January 30, 2012 2:49 AM

This is a very helpful post as many people are struggling to make ends meet. Some of the tips are obvious and definitly easy to adapt to, but without internet it would be extremely difficult/ more time consuming to go to the library to search for new jobs. Also some libraries restrict the time you can surf the web.

Posted by RichUncle EL | January 31, 2012 10:29 AM