Be prepared when times seem good
Miranda never realized how vulnerable she was.
Her rise had been Swift. She handled major accounts in an essential industry. Income grew into six figures. She had a great career, a nice home, and a wonderful situation. Miranda was a loving wife. Then everything changed.
Suddenly and without warning, she was let go from her position.
She took stock of her situation and realized she had trouble.
In a crisis, most peoples’ focus narrows to the here and now. But Miranda had a flash of perspective on the long term. Not only would this be trouble for now, but she had set nothing aside for the future. Once re-established, she would have to work aggressively to make up lost ground.
Like most Americans [get a statistic], she had no cash reserve and no assets to tap into. There were no long-term savings. Retirement funds, for example, need to be protected but can provide some assistance in emergencies. (The rules are complicated and the penalties are severe if you are not careful. But they are a resource.)
She applied for unemployment but it was not enough. Miranda took a hard look at expenses. She questioned each dollar that went out the door. Lifestyle had to change temporarily. For the moment, austerity ruled.
The job search took longer than she anticipated. Her mortgage lender started down the path of foreclosure several times. Miranda was not sure she could hold it together. Then she got a break. A new position in the same industry capitalizing on her skills and experience.
The experience was a wake-up call. Back on a career path, Miranda has a new determination for managing her finances.
Looking back, she recognizes some important principles.
Know you can lose your job at any time so have a cushion. At her level, it may take six months to find a new position. Have cash and short term investments worth six month’s expenses set aside in case you need it.
Know which expenses are critical and which are flexible. She realized she enjoys a six-figure lifestyle, but does not need that much to get by. Know what you can cut if something happens.
Start saving immediately for the long term. She realized she had nothing put away for retirement either. The math of wealth accumulation is not complicated. You get more leverage from compound interest over the long run. The sooner you put even a little away, the more it gets magnified down the road. Sign up for your company’s retirement plan as soon as you are able. You may have to postpone saving for a while if there is an interruption in your employment but the money you have saved will continue to work. The longer you put it off, the harder it will be to accumulate what you will need.
Her advice: equip yourself. It is not enough to be making a good living. You need to be working on the long term. And be positioned weather the unexpected.
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