Author Topic: What should I do with my extra cash if I'm worried about losing my job?  (Read 3049 times)

fsohn

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Hello Mustachians-

I am a recent convert to Mustaschianism, having been turned on to the blog by a friend in January.  Since then, I've cut my overall spending by about two-thirds -- refinanced my student loans from over seven percent to under five percent, started riding my bike for my everyday travel around town, and stopped buying pointless, random clothes I wear once and give to charity.  I will also be moving soon to a cheaper apartment that better suits my needs.

My question is this:  With my expenses whittled down (admittedly, there are still several hundred dollars of expenses that can be cut out -- I'm working on it, trust me!), what should I do with my extra cash?  I make a very good salary, but I am in an industry where I could lose my job at any point in the next six months, with little to no warning.  I lay out below what my current financial picture is, and humbly ask for the input of the broader community.

Monthly Expenses
Rent:  $925 (down from $1435)
Internet:  $70 (comes with basic cable and HBO -- its actually MORE EXPENSIVE to go without due to Comcast's idiotic pricing structure)
Other Utilities:  $35
Mobile Phone:  $45 (on Google Fi, so it varies -- sometimes a bit lower, sometimes a bit higher)
Groceries:  $250
Totally Cuttable Useless Crap That I Should Be Punched In The Face For Spending On:  $350
Student Loan:  $2000 (minimum payment is about $1300)
Dry Cleaning: $25 (I wear a suit to work)
Insurance:  $100 (I've shopped around for better rates, but no one is offering a better one because i am a horrendous driver)
Giving: $300
Retirement:  $458.33 (IRA funding)
Other Savings:  $300

Current Assets/Liabilities
Vanguard IRA:  $15185
Betterment Emergency Fund:  $15919 (in a mostly bond portfolio -- a taxable account)
Other Savings: $2000 (split between Capital One and Chase, the latter of which I have only so I can easily deposit cash)
Student Loan:  $106,000 (down from about $245,000 two years ago!!!)

My income is about $11,000 a month, so even with my absurdly bad spending, I have about $6100 left per month.  I was paying off my student loans agressively (to the tune of an extra $5000 a month), but my job has become less secure.  Should I just keep it all in cash savings?  Invest it in a taxable account (Betterment or otherwise)?  I've driven myself crazy with what to do with it, and I need someone to punch me in the face and tell me what I'm doing wrong.

Gin1984

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With paying $2000, $1300 and the extra $5000, how long before the student loan is paid off and what is the rate?
Also how long do you think it would take you to get another job?  And is the IRA a Roth or traditional?

ender

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If I were you I'd just stash a bunch of cash.

Do you have access to a 401k instead of an IRA? You could potentially put money into that instead of an IRA as it's easier to dump lump sums into an IRA instead of 401k.

This year we have some potentially-expected-unexpected expenses coming up so we've not put money into IRAs yet, just my 401k. But it also means that as the year goes on we can easily drop the $11k in there if we want. Harder to do that with a 401k :)

lbmustache

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So it looks like your expenses are around $5k? If shit hit the fan, you lost your job, I am guessing this could be pushed a bit lower? (Giving, retirement, etc.)

I would think about how long it would take you to get a new job. 2 months? 6 months? A year? Figure that out and save accordingly. I personally need a 5-6 month cushion, and since my expenses are around $2k a month (if I cut most extras out), that means I need to save about $10-$12k.

fsohn

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IRA is a traditional IRA.  My employer provides a horrible 401K -- no match and $30 per purchase, even if I were simply adding to an already-held mutual fund.

The student loan is at 4.96 percent.  At the current rate of $2000 a month, I will pay it off in 4.5 years.  If I added an extra $5000, i would pay it off in about 15 months.  If I added an extra $6000 (which is probably the most I can go), it would be paid off in about 13 months -- just shy of my 31st birthday.

It really hard to say how long it would take me to get a new job if I were let go.  In the industry I'm in (law), it can be quite challenging to find work at a new firm with my experience level (5 years).  That's because people either want someone a little bit more junior that they can mold, or a little bit more senior with a book of business.  I'd say there's a 50% chance of finding a similar paying job in 9-12 months.  It could obviously happen faster than that, but the specific area I'm in is very tight at my experience level.

If i really needed to cut my expenses to the bone (which I'm working towards anyway -- as I pack my stuff to move, I'm realizing how much Truly Stupid Crap I own), I could get it down to probably $3000 -- rent, minimum on my student loan, food, etc.

Gin1984

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So I would aim for 12 months of bare bones expenses PLUS COBRA (find out the cost), so $3000/month plus COBRA.  I'd cut the extra money toward the student loan until you had 12 months of cash/bonds.  You should be able to do that relatively quickly (less than three months).  I'd also put out feelers for an new job now.

mountains_o_mustaches

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So I would aim for 12 months of bare bones expenses PLUS COBRA (find out the cost), so $3000/month plus COBRA. 

I definitely wouldn't pay for COBRA - it tends to be WAY more expensive than buying temporary coverage through your state's health insurance market place.  You also can (gasp) go without insurance legally for I believe 3 months (double check that).  Admittedly the coverage is likely better through COBRA, but you likely won't need that for the short period of time you'd be unemployed (also see MMM's posts on insurance).  12 months also seems a bit steep - do you really think you'd be completely unable to find a job for a year?  I'm in a similar position - and I am squirreling away enough for 3 months figuring if I absolutely don't find the perfect job I would start doing SOMETHING for income.

fsohn

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Thanks for the input, folks.

The 925 is the new rent -- current lease is fully paid, and the new rate is effective next month.  If the worst came to the worst, I could move back in with my parents.  I actually considered it before signing a new lease, but while they are lovely people, I just couldn't bring myself to do it.

I would probably be eligible for unemployment -- people who have been let go in the past (even for what is actually a performance-based reason) have been formally "laid off," keeping them eligible in my state.  There's also a possibility of severance.  A friend of mine who was let go was given three months, including firm-paid COBRA.  I'm not sure if they'd do that for me, though, since there isn't enough of a sample size to be anything close to certain.

There are certainly other things I could do for money in a worst-case scenario -- contract work and driving for uber/lyft come to mind.  Realistically speaking, if I applied to every opening in the city for which I'm mildly qualified for that is at or near my current income level, I could probably find a new position within six months, but it would be just as insecure as where I am now -- just the nature of the business. 

With that said, I'd say that there's at least a 30% chance that it could take over a year -- a friend of mine in a similar position was laid off and took almost 15 months to find a new position.  She was picky, but the legal employment market is a wonky place, where really any bad thing that you can imagine might happen.  That's a long way of saying that I'm risk-averse, both by personality and by profession. 

If I were to go with 12 months of savings, where should I keep it?  Cash account or in bonds?  My betterment emergency fund is 70% bonds and it lost a bit last year, but more than made up for via tax loss-harvesting.  Is that too risky a proposition?

DebtFreeBy25

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I would probably be eligible for unemployment -- people who have been let go in the past (even for what is actually a performance-based reason) have been formally "laid off," keeping them eligible in my state.  There's also a possibility of severance.  A friend of mine who was let go was given three months, including firm-paid COBRA.  I'm not sure if they'd do that for me, though, since there isn't enough of a sample size to be anything close to certain.

There are certainly other things I could do for money in a worst-case scenario -- contract work and driving for uber/lyft come to mind.  Realistically speaking, if I applied to every opening in the city for which I'm mildly qualified for that is at or near my current income level, I could probably find a new position within six months, but it would be just as insecure as where I am now -- just the nature of the business. 

Is the issue that you're currently working in an unstable field of law? If so, I would weigh the option of riding out  the market in your current field until you hopefully land another high paying job with the choice of switching gears to a lower paying but more stable field. I have friends in oil and gas law, and they're all continually weighing the options of waiting out the market, relocating for another oil and gas job or getting out of the field altogether. Given that you've just signed a lease, relocating likely wouldn't make sense.

Is there anything you can do to reduce your chance of being laid off/let go? Would it be possible to start looking for another job now? If so, assuming you land another job, would another employer in your field be more stable?

I'd recommend a mix of cash and bonds for your emergency fund. The only reason to keep a full year's worth of living expenses in cash is if you expect to need it in the very near future. If you become unemployed, you could then cash out your bonds if that made you more comfortable. If you manage to avoid any serious misfortune, you'll have earned some interest on that money. You currently have about $18,000 in liquid assets which is roughly 6 months of your basic expenses, so I don't consider your situation an emergency.

A note on health insurance: If you're earning little to no income, you'd likely qualify for a subsidy or Medicaid. In any event, COBRA is likely to be far too expensive. You'd definitely have more affordable options in the marketplace. I'd budget $150/month if you can manage on high deductible  and $500/month if you need more coverage.


Playing with Fire UK

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Totally Cuttable Useless Crap That I Should Be Punched In The Face For Spending On:  $350

Most self-aware budget line ever.