It is hard to be prepared for something that you are not expecting. But, in this economy, with unemployment numbers through the roof, why not just expect unemployment and put a few things in place to better protect yourself in the event unemployment becomes a reality? I recently adopted this mentality to prepare for the unknown in my own life.
Last year is when I finally took the reigns on my finances and began to look at the big picture. Among all of the other changes that come along with being newly married, since we were now a military family, I was unsure of what my employment situation would be moving forward as we changed locations. For much of last year, we faced what is very common for military families, not knowing exactly where our next duty station would be. While this is very exciting for me, at the same time, it was a little scary. I am an attorney in the consulting field and although I felt like I’d be able to work wherever we went inside the U.S., I didn’t know what the nature of that work would be (consulting or law) or what type of salary I would have coming in, if any.
Since so much was unknown to us at the time, I decided to assume the worst case scenario – that I would not be working at all after our move during the summer of this year – and do as much as I could to ease my financial burdens and put us in a better financial position. If I were out of work, my husband would have to carry the weight and we would have to make a lot of changes to our lifestyle. Since I am the one in the relationship who carries most of the debt, with student loans, a newer car, and more consumer debt, I felt like I needed to do as much as I could to reduce my debt and contribute to our savings while I was still making a salary. At the end of the day, if I remained employed this year, the steps I took would only put us in a much better place financially.
Here are the things I did over the past year, as we moved closer toward the unknown:
Paid Down Debt
At the beginning of last year I made a commitment to myself to pay down my credit card debt and be more aggressive with paying on my other commitments such as the car and my student loans. At the time I had about $20,000.00 in credit card debt. I put myself on an aggressive payment schedule and paid about $1200/mo. toward my credit cards. I also paid at least a hundred dollars over the minimum amount due for my car loan and my student loans each month. My husband’s salary also helped to offset my payment schedule as well, as he took care of most of the large purchases that we made toward the renovations to our house last year. He also took care of most of our social activities.
By yearend, I had paid down my credit card debt to $5000. I also moved the remaining debt to 0% interest credit cards by taking advantage of 0% balance transfer offers I found. I had also paid down my car loan by $6000. In December, I took myself off of the more aggressive payment schedule temporarily in preparation for our travels during the holiday season and for my husband’s deployment this year. But, overall, it felt really good to see the progress I had made throughout the year. It also added momentum and made me want to continue being aggressive.
Since my husband left for deployment at the beginning of the year, I have had to modify how I am handling my finances. I have modified my payment schedule and now also have to account for some expenses, such as social spending, mostly taken care of by my husband when he was here. While I am still being more aggressive with my debt payments, I have redirected my most aggressive payments toward my highest interest debt, my car loan at 6.75%.
The change in my behavior toward debt repayment was initially triggered by the insecure future I envisioned short-term, but it is something that will stay with me in the long run. My forward-looking goal now is to continue the aggressive repayment of my debt while being a lot more responsible with the assumption of debt.
Made Consistent Savings Contributions
Putting money to savings has always been an area of weakness for me. I seemed to ignore the mantra about paying yourself first. My priorities were paying on my debt, while also living a comfortable, yet no so frugal lifestyle. Somehow, savings was always sacrificed. My husband entering my life was definitely a positive for me. Before him, living on my own as a single woman, I didn’t have a big picture perspective. I lived for the day and paid as I went. I always had enough, if only barely, and I didn’t consider much about the consequences of catastrophe if one ever occurred. I planned well for the moment, but I didn’t have a plan B for the unexpected.
My wake-up call came when my husband once called me ‘reckless’ with my money. This stung because I’d always considered myself to be responsible because I never had trouble with money, but he was right. My plan was a day-by-day plan, not a forward-looking one. Many people caught up in the current economic crisis became that way for failure to adopt a forward-looking plan.
So, last year, I began to save on a routine basis. Before, I would put money into savings, only to spend that money and then replace it with new money later on. So, I could consider myself saving, but I never really accumulated much cash saving this way. Now, I have money automatically debited from my checking account and deposited to a savings account at another bank. This is better for me because the money is not as accessible. Since I started saving this way, I have opened other savings accounts at banks online to take advantage of higher interest rates. The immediate inaccessibility of these accounts makes me less impulsive with the money in those accounts.
At the beginning of this year, I doubled my automatic savings deposits. Now, I have twice as much money deposited into savings. This also increases the momentum of my plan. The more money can see accumulating, the more money I want to add to keep amassing cash. I also try to contribute to savings whenever I have a little extra money. The difference now is that I have a certain amount of my money designated for savings every month and I can make a budget that excludes that money. It is like that money was never paid.
Increased Contributions to 401(k) from 10% to 12% of My Salary
I have a 401(k) retirement plan with my job. Every year, we can change our contribution amount. I have increased my contribution amount every year for at least the last three years. This year, I increased it again. Even though this had been something I was doing every year, it is also a part of my forward-looking plan. If I were to become unemployed this year, we would be in a better financial position for retirement by the middle of the year than we would have been if I had not increased the contribution. It may be a small step, but it is something.
Every Small Step Is Still a Step
Over this past year, I made the assumption that I would not be employed after our move to Mississippi. I took some small steps to put us in a better financial position in the event that we would become a one-income family. I certainly could have done a lot more, but every little bit counts. Even if I am able to keep my current position, I have taken steps to create the momentum to keep working toward our financial security.
If you could prepare to become unemployed, what small steps would you take?
MAKE MONEY MONDAYS is usually a forum to discuss ways in which you can create additional sources of income. In light of the current employment environment, however, I am using this forum to write a series of posts focusing on unemployment issues. This is the last post in the Unemployment Series. If you missed the previous posts, please go here to find them. If you have any questions, or would like to have another unemployment issue discussed in this series, please let me know in the comments below. You can also email me at email@example.com.