In the final post in this series, we'll look at another couple of things you can do to make sure you're prepared for any eventuality.
Consider the Short and Long-Term Impact
Whatever is going on, its impact needs to be quantified where possible. That way we can assess the impact of the current crisis and adjust accordingly. Quantifying the impact of an event might not be easy at the extremities of your timescale, but it’s easier in the short-term and then we can work from there. For example: you’ve lost your job. What variables might you need to consider?
- Take an estimate of how long you might not have an income
- Factor in any redundancy payment you might get
- How much is your emergency fund?
- Knowing those things, how long can you meet your required outgoings?
- What expenses can you cut now to make that timeframe longer?
Those are the kinds of short-term things you’ll need to think about. Knocking on from that is the longer-term impact. If the jobless time is short, it’ll have little impact on the long term. You’ll adjust, get another job and start saving again.
If you’re without work for a year, then you are going to erode your emergency fund, and maybe need to dip into other reserves if you have them. This will take time to build back up, so your plans for FI or retirement might need to be put back at least a couple of years, maybe more.
Knowing this, you can commit to short-term decisions when you do find work, which can limit the damage, for instance, you can keep expenses lower for longer, and increase your savings rate.
If you find work with higher pay, you can commit to living on the income you were receiving at the old job and saving the extra – this might even accelerate your journey towards FI. Take a breath, then consider and try to quantify the impact in the short-term and make adjustments. Consider the long-term impact too, but don’t panic and change everything.
Adjust
And then you can adjust, make changes, react. But you’re doing so in a considered way, not a hasty, knee-jerk way which is guaranteed to do more harm than good. Instead, you are using the current challenges to reassess your position and make the necessary changes as far as are possible within the new situation.
A challenge like losing your job is likely fairly minor. Losing your ability to work ever again due to a car accident that leaves you disabled is a different thing altogether. (On that note, I recommend a book called The Miracle Morning by Hal Elrod).
These scenarios are mercifully very rare, but even then, with a good insurance programme, your future can be financially stable, at the very least. That’s part of being prepared for these paradigm shifts that sometimes happen.
What changes could you make to set things on the right track after the crisis has passed? Remember the levers that you can control – savings rate, investment approach, tight budgeting. These are the things which you might need to ramp up or down to adjust your trajectory after things have calmed down.
Leave a Reply