Author Topic: how precarious is your situation?  (Read 6530 times)

sly

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how precarious is your situation?
« on: July 04, 2014, 04:46:19 PM »
An outside observer looking at my financials would probably say that I am "doing well". I earn a good salary (over 150k total comp), I have savings and very little debt (just a small residual student loan). On paper I know it sounds like a great starting point for some serious wealth accumulation, and it is, but I can't get over how precarious my situation really is. Here is why:
1- while high paying, my job is also very competitive. I am only as good as my current years performance. Though there are no signs of it right now, I could potentially lose this job at anytime.
2- I could always find another job but there is no way of knowing how much it would pay or how quickly I would get back in the workforce. I just don't have the type of specialized skills that guarantee a certain carrier path and pay bracket.
3- In order to maintain this high paying job I have to live in a high cost area, so a huge chunk of my pay check goes towards rent every month.
4- If I were to become unemployed my wife's salary would barely cover our rent and we would have to start dipping into our savings

All of this is hypothetical, but it's very easy to imagine a scenario that would see me go from riches to rags very quickly. I envy the people on this forum who seem so confident about their future income and are quietly plodding towards FI.

I guess I'm curious to hear how you guys deal with financial uncertainty in general, and if you had any idea how I could make my situation more secure? thanks
« Last Edit: July 04, 2014, 06:48:57 PM by sly »

arebelspy

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Re: how precarious is your situation?
« Reply #1 on: July 04, 2014, 04:56:38 PM »
The higher your savings rate, the more secure you are, because it'll let you have 1) more stocked away for if something bad happens and 2) you living on less, so you need to cover a smaller amount if something bad happens.  Not needing to cover large cell phone bills, utility bills, student loans, etc. if you lose a job is huge towards being secure.

So work on stocking away a lot and reducing expenses.

Also work on becoming a desired commodity in case you do lose your job - what skills can you develop or how can you make yourself more desirable to potential future employers?

Also start looking at how you can utilize your current skillset (and/or the one you're developing) in a lower COL area.
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brewer12345

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Re: how precarious is your situation?
« Reply #2 on: July 04, 2014, 04:58:00 PM »
To be honest, when I was most vulnerable I did not think about it too much.  I spent my energy pulling myself up via bootstraps and saving as much as possible as an all-purpose source of support I times of trouble.  The ugly knocks and blows will come, to be sure, but if you have been saving your pennies and remain flexible it will get you through the bad times.

ch12

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Re: how precarious is your situation?
« Reply #3 on: July 04, 2014, 05:58:07 PM »
I would say to diversify your income streams. Always have a Plan B. If you only had your wife's income, how would you live? Joe over at Retireby40 lived for a year on only his wife's income before giving notice at his high paying job as an engineer at Intel.

I have pretty average income for an American, but I live on 30% or so of my income. That means that it will not impact my lifestyle at all to move to a job that makes half or less of my current gross income.

I also constantly job search and apply to at least one job a month. It keeps my résumé and interview skills current, regardless of how happy I am at my job.

Caoineag

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Re: how precarious is your situation?
« Reply #4 on: July 04, 2014, 06:08:36 PM »
While I understand your concern, few people have a less precarious position. Very few people have a truly secure position, can guarantee the speed of their return to the workforce or how much salary they will command once there. The difference between you and most people is you seem to recognize how easy it is to go from riches to rags whereas most people ignore it or pray it never becomes an issue.

Frankly most everything you are concerned with, both my husband and I have experienced, i.e. lost position without backup, massive salary cuts and decent periods of unemployment. Our big redeeming issue is that we didn't both experience it at the same time. We also were good at keeping our mandatory expenses down and cutting expenses to the bone the second we lost income. It definitely delays financial independence but isn't that a good reason to reach FI as soon as possible, so that its not a huge concern?

My husband's income is extremely volatile and layoffs have occurred in his industry every year (multiple times per year) he has been in his field BUT it pays well. So we keep savings high, expenses low and accept that if he isn't flawless every year and doesn't remain one of the top producers, he will be cut. If that is scary for you, maybe you should start looking at transitioning to career options that are less volatile or keep a much larger cash cushion for periods of unemployment.

Zamboni

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Re: how precarious is your situation?
« Reply #5 on: July 04, 2014, 06:53:12 PM »
There are folks who live on very little even in high COL areas like NYC.  If you really want security, then figure out what they are doing and emulate them for a few years.

I had a scare a couple of years ago where I was having numbness and coordination problems and it dawned on me that I could have a debilitating disease like MS.  Thankfully the cause turned out to be something treatable, but while this was going on I thought long and hard about how my life (and the lives of my children) would change if I had high healthcare costs and couldn't work.  My situation was quite precarious indeed.  That episode got me thinking more about financial planning so that I could survive comfortably if unable to work even at a relatively young age, and ultimately that led me to this website.

You are right:  it is easier to slide from comfortably middle class and fall into poverty than many people think.  I have a colleague who studies this at the global level.  In most regions, escape from poverty and descent into poverty occur at approximately the same rate.  The reasons for this and rates that it happens are different in different parts of the world, but in most places the number of "poor people" remains fairly steady over time. 

In many cases people who are middle or even upper class suffer "multiple blows" which cause their descent into poverty.  In his work studying people who were "not poor then but poor now," he found that sudden health problems of one or more family member(s), especially if associated with high healthcare costs and/or job loss, were the most common reasons that people who were once well off fell into poverty.  In his studies, descent into poverty had health issues as a contributing factor in 60% or more of all cases in all regions studied.  Other prevalent factors include high obligatory expenses including even such things as big expensive weddings or funerals (arebelspy addresses this with sage advice about getting your "overhead costs" down) and becoming mired in high interest debt ("debt bondage").  He found that things people might think is what causes someone to fall in poverty (drunkenness, laziness) are almost never the cause (were factors in less than 4% of cases studied.)

So, what does this all tell us?  Try to stay healthy through your daily living (while recognizing that health is not something that can be completely controlled) and be sure to keep an adequate level of health insurance.  Since you can't completely control the health of you and your loved ones, keep your daily "operating expenses" as low as you can so that you can weather healthcare crises if they come.  Don't go into debt, especially not for things that arise from social pressure (big house, big wedding, nice car.)  All of this is in line with the message on this and similar websites, so you came to the right place!
« Last Edit: July 04, 2014, 09:19:41 PM by Zamboni »

former player

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Re: how precarious is your situation?
« Reply #6 on: July 04, 2014, 07:24:23 PM »
You say that your rent takes "a huge chunk" of your $150,000 salary, and that your wife's salary would barely cover the rent.  I know you live in a high COL area, but even so this suggests to me that you are overpaying for accommodation.  Too big?  Too fancy?  A particularly high-cost part of town?  A bad deal?

If you can do something to lower the amount of rent you are paying, it could make a big difference to the sustainability of your finances.  Going smaller is usually the easiest "win" on rent.

backyardfeast

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Re: how precarious is your situation?
« Reply #7 on: July 04, 2014, 10:54:53 PM »
I have actually found it really useful to give the worst case scenario a thorough think-through.  It's often reassuring.  Choose the most *likely* scenario, and give it a test run.  For instance, my husband and I are just starting to build savings, etc.  We're doing better than we have in years, but we're still living off probably 75% of our take home income, and we don't have much of an emergency fund (not months worth of savings).  Our most likely scenario is that one of us loses our job (although it's possible that there's a 2008-like meltdown and we both lose our jobs and the value of our home plummets, that's more than I can plan for right now, and doesn't seem likely in the short term where we live).

If one income goes, it doesn't just disappear.  We need to live on 1 salary for 2 weeks-1 month, then employment insurance kicks in at 50% of salary (to a standard max) for up to 52 weeks.  That's 75% of our total income to cover today's expenses.  But we wouldn't keep today's expenses!  Not only would one set of commuting and other work-related expenses disappear, there are all kinds of areas where we could cut back to bare bones if we needed to (over-payments on the mortgage, RRSP savings, non-essential groceries, etc).  Although we are certainly working hard to build our savings, I find peace in realizing that we are incredibly priviledged, and there's a lot we could be flexible about if we really were in crisis.

Note that we're in Canada, so the health crisis is less of an issue, but people do fall through the cracks here too, in unusual circumstances.  But we also have family and other emergency safety nets if it really came to that...YMMV, of course.

Zamboni

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Re: how precarious is your situation?
« Reply #8 on: July 05, 2014, 06:22:20 AM »
^The family safety net is reassuring and a boon if you have it.  Many people do not really have it bc their other adult family members are living a week to week financial situation.  In fact, the drain on money and time and accumulation of debt to help other adult family members (often because of health or end or life issues) was one of the recurring themes in the stories about falling into poverty.

Paul der Krake

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Re: how precarious is your situation?
« Reply #9 on: July 05, 2014, 06:41:17 AM »
Real disasters strike in pairs, i.e. health issue of one spouse AND job loss of the other, or something like that. We on this forum are a well prepared bunch, able to breeze through one or the other, but it takes a very special kind of preparedness to be able to withstand two concurrent blows. Few people in the accumulation phase could pull it off, which is why we have savings and social programs in the first place.

I guess I'm curious to hear how you guys deal with financial uncertainty in general, and if you had any idea how I could make my situation more secure? thanks
Try your best to live on your wife's income alone, whether it means downsizing or moving to a cheaper neighborhood. Take a look at how single people in her pay range do it in your area for pointers.

Noodle

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Re: how precarious is your situation?
« Reply #10 on: July 05, 2014, 08:58:10 AM »
Aside from managing your money well, which this site can help with, I find it helps to accept this as reality and plan for it...just like people who live in hurricane zones know that a storm is a possibility and (should) have preparations done, but don't spend their lives living in fear.

Personally, I find it very comforting to figure out what my absolute bare bones budget would be--rent, minimalist groceries, reasonable electricity, etc. Then I know what I absolutely have to cover. Also research how likely you are to lose your job in such as way as to get severance/unemployment, and what that would be (it's usually 50% but there's a cap for high salaries), how to qualify, etc. Then you have all that info ready if the blow falls and you have space to cope with the emotional part of job loss.

Also, yes, look into multiple streams of income. It doesn't have to be starting up a whole new business, or investing. I know several people who, for instance, teach in professional programs, a couple of courses a year. Networking is important too. Just keep in touch with people, send them a quick note (if you can think of something helpful to do for them, like a contact for their project, that's great). You want to have that in place BEFORE disaster strikes.

lhamo

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Re: how precarious is your situation?
« Reply #11 on: July 05, 2014, 02:17:58 PM »
My job is pretty secure but my DH's situation is less stable.  What lets me sleep well at night is keeping a larger-than-typical cash reserve -- in our case, it ranges between 2-3 years of basic living expenses in relatively liquid investments, including a large stash of Ibonds that we could cash out for roughly a year's living expenses if needed.  We also have substantial Roth IRAs that we could tap into the principal on, if needed.

We probably don't need that much, as if things changed dramatically we could sell our current apartment and have enough to FIRE on as long as we didn't insist on staying in Beijing.  But it is what keeps me from worrying, and we have enough in the markets that is compounding at a nice clip, so I don't see much incentive in switching to a riskier asset allocation at this point.   If we weren't roughly FIRE-able already, maybe I would feel differently.  Now that we are more or less on the brink, safety and security gives us peace of mind and a great degree of freedom, so I'm not interested in chasing after higher returns.

MelodysMustache

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Re: how precarious is your situation?
« Reply #12 on: July 05, 2014, 03:11:40 PM »
^The family safety net is reassuring and a boon if you have it.  Many people do not really have it bc their other adult family members are living a week to week financial situation.  In fact, the drain on money and time and accumulation of debt to help other adult family members (often because of health or end or life issues) was one of the recurring themes in the stories about falling into poverty.

I am one of the lucky ones that has a family safety net.  I do pretty well on my own and can handle most emergencies.  I also know that if things get truly terrible I will always have a roof over my head and food on the table.

sly

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Re: how precarious is your situation?
« Reply #13 on: July 05, 2014, 07:15:16 PM »
thanks everybody, so many great points.

1- rent: the circumstances of my move were a bit rushed so I kinda had to take this rather expensive apartment. There are no cheap places to rent here, but I can probably do a bit better, I'll start looking before my lease is up.
2- savings rate: OK and improving, but not in the 60-90% range like some of you. I realize this is key, I just wont get there overnight but it has to be a priority.
3- job skill: I think I'm going to take advance excel classes and some basic programming (SQL). I work in banking/investment but those skills could open the door for jobs in finance or risk management which are a bit more secure and would give me more flexibility to work in a lower COL area one day. Either that or I'm going to work 100% on soft skills (public speaking, mentoring) and try to grow my career that way.
3- health: I am pretty health obsessed as it is, but I am always working on my health and looking to improve.
4- Family: I have some kind of family safety net but FAR FAR away. I wish I had a local family network to rely on, right now I don't but I stay connected with my family and stand ready to help them, I hope they will do the same for me if sh*t hits the fan.
5- zen: I need to stop worrying about things :-)

oldtoyota

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Re: how precarious is your situation?
« Reply #14 on: July 05, 2014, 08:16:13 PM »
In response to Zamboni's post:

In the "old" days when the woman stayed home, the woman could go into the workforce if the man lost his job. Flash forward. Two incomes means more money. Homes near good schools increased in price and banks made it easier for those without savings to spend a lot on homes. Now, if both partners are working, there's no person who can enter the workforce to "make up" for the money the family needs to pay the mortgage, etc if one partner is laid off. Most of us are dependent upon those two incomes.

We bought our home for cheap. I feel fortunate. Despite that, the mortgage is still our largest expense.

From The Two-Income Trap:
"...married couples with children are more than twice as likely to file for bankruptcy as their childless counterparts, and 75 percent more likely to have their homes foreclosed. And the danger is growing worse by the year: In 2002 1.6 million people filed for bankruptcy, many of those middle-class parents. a record . As Elizabeth Warren and Amelia Tyagi note in their book, The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke, having a child is now "the single best predictor" of bankruptcy. "

I would focus on reducing expenses. If you had to, could you move to an apartment and ditch the mortgage?






Bateaux

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Re: how precarious is your situation?
« Reply #15 on: July 06, 2014, 11:18:51 PM »
We got hit with a triple wammy in 2008.  The economy went to hell, my 14 year old son had cancer and my wife couldn't work for two years.  Had we not been Mustachian before I'd ever heard the term we would have sunk.  Be a good Mustachian and it will get you through the rough stuff.

4alpacas

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Re: how precarious is your situation?
« Reply #16 on: July 07, 2014, 03:01:24 PM »
The higher your savings rate, the more secure you are, because it'll let you have 1) more stocked away for if something bad happens and 2) you living on less, so you need to cover a smaller amount if something bad happens.  Not needing to cover large cell phone bills, utility bills, student loans, etc. if you lose a job is huge towards being secure.
+1

We live in a high COL area.  Our rent is ridiculous. However, our income makes up for this.  If we both lose our jobs (either of our salaries could cover our expenses), we would still be ok because we have a cushion that would allow us to ride out the remainder of our lease. 

While others may tell you to move to a lower COL area, I would argue the opposite.  Take advantage of the ridiculous salaries offered in a high COL area, but buck the trend and squirrel away as much money as possible.  We're living in a one bedroom apartment, saving a large percentage of our income.  AND we're both working jobs we love.  Life is awesome. 

thepokercab

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Re: how precarious is your situation?
« Reply #17 on: July 07, 2014, 03:23:38 PM »
I'd just echo the other sentiments here that it really is all about the savings rate, and getting your lifestyle to a place where losing a big chunk of income is a small bump in the road as opposed to a devastating event. 

I've always been able to stay employed, at a pretty decent salary.  The nature of my work is very cyclical and the longest i've been employed at one place is about 2.5 years. But it wasn't until about 15 months ago that I ran into MMM and really focused on increasing our savings rate.  Before, we really were living on the edge, bringing in a good income month to month, but almost nothing in savings.  If I had lost my job, i'd have 30 days tops before i'd be panicking. 

Now, since we've been able to maintain a 40%-50% savings rate for over a year, we've got about a year of expenses saved up. Far from FIRE, and what other folks here have accomplished, but enough where I sleep a lot better at night.  Now, if I lost my job, i might take a vacation first before trying to jump into something else ;)

kite

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Re: how precarious is your situation?
« Reply #18 on: July 07, 2014, 04:24:38 PM »
Not everyone in the high COL area can afford high rents.  I work in one, but commute from a really cheap area by train.   
It's not rocket science and there is no big secret to it, but the key to amassing a huge net worth that can withstand much of what life is going to throw at you is figuring out how to live on the lower of your two salaries.   Layoffs, injury, natural disasters and children happen to the best of us. 

mpg350

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Re: how precarious is your situation?
« Reply #19 on: July 07, 2014, 06:02:40 PM »
The higher your savings rate, the more secure you are, because it'll let you have 1) more stocked away for if something bad happens and 2) you living on less, so you need to cover a smaller amount if something bad happens.  Not needing to cover large cell phone bills, utility bills, student loans, etc. if you lose a job is huge towards being secure.

So work on stocking away a lot and reducing expenses.


I agree with this 100%