Modern businesses put a lot of effort into managing risk. They take risks, because that's how they might make big money. But they also work to mitigate the downsides of their risks, because employee stock options don't pay off real well if the CEO, or someone or something else, blows up the business.
Individuals need to manage risk as well. Bankruptcies most often result from unexpected problems, like a medical crisis or job loss. If you don't deal with the ways that life can fall apart, the chances of your life fallling apart increase. The need to manage personal risk may be one of the most under-appreciated aspects of financial planning. While there's no perfect or complete way to analyze personal risk, here are some things to think about.
Age. As you grow older, reduce risk. If anything goes wrong, you will have less time to recover, and less ability to recover as your value in the labor force declines (and it eventually will). There are variety of ways to reduce risk discussed below. The important point is that as time passes and you accumulate more gray hair, reduce personal risk.
Occupation. Your occupation can be a major risk factor. Some types of work can't be performed by older people. This would include construction, law enforcement, military service, fire fighting and other jobs that demand physical strength and endurance. It could also include jobs that don't demand physical strength, but do require certain abilities that deteriorate with age, such as flying, working as an air traffic controller, or performing surgery. If your job has a relatively limited time span, start building wealth at an early age and persist. You may be able to have a second career when the first one ends. But then again, maybe not. Don't count on what's highly uncertain. Assume your first occupation is all that you'll ever have and base your financial planning on it.
Employment stability. If your job security is unstable, build up a large pool of savings to tide you over the rough spots. A year's worth of living expenses, or more, in an emergency fund would be a good idea. If you work in a boom-bust industry, like construction or oil and gas drilling, or an unpredictable job, like entertainment, your savings account is your best friend. If you have to take on debts, or lose a car and/or house, because you didn't prepare for a layoff, your long term financial future may be cloudy.
Health. Factor into your financial planning your health problems, especially any chronic ones you have. There is no way to avoid having health problems, especially as you get older. That's why having health insurance is so important--you will definitely use it. Also have some savings available for health care expenses not covered by insurance--these expenses are one of the leading reasons for personal bankruptcy filings. If your health is good, save plenty because you may need to finance a long life span.
Debts. Debts are one of the most dangerous risks. Jobs may not be secure, but debts, once incurred, are a certainty. If you're poor, but debt free, you won't end up in bankruptcy. Poverty doesn't lead to bankruptcy; unmanageable debts do. But debts are also one of the most controllable risks. Avoid taking on debt unless it's really necessary. Pay off debts as quickly as possible, especially as you get older. A mortgage-free house is better than a sleeping pill. There are some financial planners who will tell you to have a mortgage and invest your cash in stocks. Well, if stocks maintained a nice, steady upward trend all the time, this might well be a smart move. But if stocks are sometimes volatile--well, some people do manage to eat dog food. Avoid debt and you avoid risk.
Moral and voluntary obligations. Lots of people help their kids pay for college--and then help some more when the kids rebound home after graduating. Many help their aged parents. Quite a few help siblings, nieces, nephews, friends and so on when the going gets tough. If you are likely to accept these obligations, manage your finances to be able to meet them. Being nice can be a major financial risk factor.
Riskiness of your assets. This isn't quite the same as asset allocation. This is preparing for things to go wrong with your choice of assets. Don't think your allocation is necessarily right. Almost no one predicted the financial crisis of 2008 and hundreds of millions of savers worldwide got a big tummy ache as a result. If you really think that you and your financial planner have it all figured out, contact me about buying a very nice bridge in Brooklyn, and at a bargain price, too.
But back to the first point. Stress test your investments (see http://blogger.uncleleosden.com/2010/11/stress-test-your-retirement.html). If you are uncomfortable with the potential losses you could incur, change your allocation. Of course, no matter what you do, you'll end up with some kind of allocation. The important thing is to end up with something that you can live with on good days and bad.
Insurance. Only Congress is less popular than insurance companies. But having some insurance coverage is important to mitigating risks. We've already covered health insurance. Have homeowners or renter's coverage. Maintain plenty of liability coverage on your auto policy, and buy an umbrella policy if you have a significant net worth. Get disability coverage (first check to see what your employer offers, and supplement it if appropriate). If you have dependents, like minor children, buy life insurance. Think about long term care coverage if you have significant assets. Granted, writing a check to an insurance company feels like eating sawdust. But if life takes a u-turn, it's comforting to be able to forward the bill to an insurance company.
Boost your benefits. Work as long as possible to build up your Social Security credits and any pension benefits for which you are eligible. Okay, Congress, the White House, City Hall, the boss, or somebody is always threatening to trim or take away these benefits. But they will very likely survive in one form or another, and you benefit from maximizing them because they may offer the best shelter available when cold economic winds blow.
Showing posts with label layoff. Show all posts
Showing posts with label layoff. Show all posts
Wednesday, July 24, 2013
Sunday, November 8, 2009
Big Ticket Savings
If you've just been downsized, or have had your hours or pay cut, or you just want to stop the flood of money out of your wallet, saving is on your mind. Cutting out the $4 lattes helps, and over time can really add up. But economizing on small items takes years to have a big impact. If you've suddenly gone from being well-ensconced in the middle class to thinking about food stamps, you need big savings fast. Housing is the largest monthly expense for most households, but one that's very difficult to change. Here are some ideas for more immediate ways to save.
Cars. Keep your old car longer. Other than housing, few things cost a typical household more than the expense and depreciation of a new car. If you're part of a multi-car household, think about getting rid of one car. Drive less. Public transportation and/or carpooling are usually cheaper than driving your own car.
Home Cooking. Cut back on restaurant meals--and especially the bar tabs. Home cooking is generally less expensive, and you have much more control over the ingredients. Some restaurants dump salt, sugar and fat by the truckload on their dishes, for a variety of nefarious reasons. A home cooked meal can be quite tasty and satisfying without half the bad stuff. If you don't know how to cook, stay out of restaurants, buy a week's worth of frozen pizzas and TV dinners at the supermarket, and by the end of the week, you'll be avidly learning to cook.
Clothes. When you get down to it, most clothes purchases are discretionary, not essential. Cut back, and look for sales and discounts. You need a work wardrobe. But you don't have to dress like royalty at home or at the supermarket.
Entertainment. Entertainment is ultimately something that happens between your ears. You have control over what you find entertaining, and it doesn't need to involve a lot of money. When you were 18 and broke just about all the time, you probably had quite a few good times. You still can, even if you're broke today.
Shop for less. If you're a shopaholic, stop going to the mall. Shop at thrift shops, Goodwill and garage sales. Go to places where you can buy interesting stuff for less than $5 or even $2. That way, you can buy lots but not spend much.
Reduce your income. If you're still employed with a good income, arrange for some of your paycheck to be automatically transferred from your checking account into another account. It can be a savings account, a money market account, a mutual fund account or wherever else you might like. That way, you'll automatically save something without having to consciously decide what you have to do without. You'll have less spending money, and the thing of it is that you'll adjust to spending less.
Cars. Keep your old car longer. Other than housing, few things cost a typical household more than the expense and depreciation of a new car. If you're part of a multi-car household, think about getting rid of one car. Drive less. Public transportation and/or carpooling are usually cheaper than driving your own car.
Home Cooking. Cut back on restaurant meals--and especially the bar tabs. Home cooking is generally less expensive, and you have much more control over the ingredients. Some restaurants dump salt, sugar and fat by the truckload on their dishes, for a variety of nefarious reasons. A home cooked meal can be quite tasty and satisfying without half the bad stuff. If you don't know how to cook, stay out of restaurants, buy a week's worth of frozen pizzas and TV dinners at the supermarket, and by the end of the week, you'll be avidly learning to cook.
Clothes. When you get down to it, most clothes purchases are discretionary, not essential. Cut back, and look for sales and discounts. You need a work wardrobe. But you don't have to dress like royalty at home or at the supermarket.
Entertainment. Entertainment is ultimately something that happens between your ears. You have control over what you find entertaining, and it doesn't need to involve a lot of money. When you were 18 and broke just about all the time, you probably had quite a few good times. You still can, even if you're broke today.
Shop for less. If you're a shopaholic, stop going to the mall. Shop at thrift shops, Goodwill and garage sales. Go to places where you can buy interesting stuff for less than $5 or even $2. That way, you can buy lots but not spend much.
Reduce your income. If you're still employed with a good income, arrange for some of your paycheck to be automatically transferred from your checking account into another account. It can be a savings account, a money market account, a mutual fund account or wherever else you might like. That way, you'll automatically save something without having to consciously decide what you have to do without. You'll have less spending money, and the thing of it is that you'll adjust to spending less.
Thursday, August 20, 2009
Resources for the Down and Out
If you're running out of money, and think you're out of options, remember that, as harsh as economic conditions may get, there still is a compassionate side to America. Taking help from others isn't easy. But hard times sometimes require hard choices. Many who might go hungry themselves for the sake of maintaining appearances have a different outlook when their families are hungry. In this most nasty of recessions, many middle class people who were living paycheck to paycheck experience hunger if they're laid off. It's no longer unusual for visitors to food pantries to drive good cars and live in middle class neighborhoods; they've simply lost their jobs and have no cash for food.
If you think you're just about out of options, here are some resources to keep in mind.
Unemployment Compensation. If you think you qualify for unemployment comp, apply. It's a public benefit for those that have been laid off. Go to your state's website for information.
Food Stamps. This is a federal program that in the past you paid for with your tax dollars. It's there for you if you're in need. The states administer the food stamp program, so go to your state's website for information.
Food Banks. Many communities have food banks, food pantries and soup kitchens. Remember that donations to food banks are wasted if hungry people don't accept the donated food. Your acceptance completes the circle of virtue that comprises charity. When you get back on your feet, you can repay with dividends.
Welfare. The controversial federal Aid to Families with Dependent Children program ended in 1997, but welfare still exists as a federally funded program administered by the states. Go to your state's website for information. Many people who go on welfare stay there for a while and then get their middle class lives back together. Welfare can serve as a temporary safety net until the storm clouds roll away.
SCHIP. If you have children who are 19 or younger and don't have health insurance, there is a program called State Childrens Health Insurance Program that provides subsidized coverage for children in families with moderate or low incomes. It's a federal program administered by the states, so go to your state's website for information.
Medicaid. This is the federal health insurance program for those with low incomes. If you've gotten to the point where your income is low and you have pretty much burned up your net worth, you may qualify for Medicaid. It's a lot better than nothing. Of course, if you're old enough (65), there's also Medicare.
If you need more information about how to survive a layoff or unemployment, see our Survival Kit for the Laidoff and Unemployed: http://blogger.uncleleosden.com/2009/07/survival-kit-for-layoffs-and.html.
If you think you're just about out of options, here are some resources to keep in mind.
Unemployment Compensation. If you think you qualify for unemployment comp, apply. It's a public benefit for those that have been laid off. Go to your state's website for information.
Food Stamps. This is a federal program that in the past you paid for with your tax dollars. It's there for you if you're in need. The states administer the food stamp program, so go to your state's website for information.
Food Banks. Many communities have food banks, food pantries and soup kitchens. Remember that donations to food banks are wasted if hungry people don't accept the donated food. Your acceptance completes the circle of virtue that comprises charity. When you get back on your feet, you can repay with dividends.
Welfare. The controversial federal Aid to Families with Dependent Children program ended in 1997, but welfare still exists as a federally funded program administered by the states. Go to your state's website for information. Many people who go on welfare stay there for a while and then get their middle class lives back together. Welfare can serve as a temporary safety net until the storm clouds roll away.
SCHIP. If you have children who are 19 or younger and don't have health insurance, there is a program called State Childrens Health Insurance Program that provides subsidized coverage for children in families with moderate or low incomes. It's a federal program administered by the states, so go to your state's website for information.
Medicaid. This is the federal health insurance program for those with low incomes. If you've gotten to the point where your income is low and you have pretty much burned up your net worth, you may qualify for Medicaid. It's a lot better than nothing. Of course, if you're old enough (65), there's also Medicare.
If you need more information about how to survive a layoff or unemployment, see our Survival Kit for the Laidoff and Unemployed: http://blogger.uncleleosden.com/2009/07/survival-kit-for-layoffs-and.html.
Monday, May 7, 2007
A Financial Checklist for Job Loss
Losing a job is one of the stressful things that can happen. You know you are in financial peril, but may find it hard to think straight and remember things that might be helpful. Here's our list of suggestions for softening the blow.
(a) negotiate for as many weeks or months of termination pay as you can get;
(b) ask for payment of any bonuses, awards or commissions you’ve earned or accrued, or which you can reasonably expect based on your job performance to date (if the award was in non-monetary form, like a trip to Hawaii, ask for the monetary value of the trip);
(c) request payment for accrued vacation and sick days, and any other time off you've earned or been awarded;
(d) ask for continuation of health insurance benefits (remember that you have COBRA rights to retain your employer’s health insurance for 18 months even if your employer doesn’t offer anything else; even though you’d have to pay the entire cost of COBRA coverage yourself, it's still worthwhile);
(e) ask for continuation of other insurance benefits, such as dental coverage or life insurance;
(f) obtain a written statement of the balance in your 401(k) account and any other retirement accounts you might have with the employer, such as an employee stock option plan--the assets in these accounts are yours (except possibly for matching funds from your employer if you haven’t had the job all that long) and you don’t have to negotiate for them; but you should make sure you know how much is there;
(g) claim any stock options, restricted stock and similar incentive compensation benefits that you have earned or are entitled to;
(h) ask about retaining any employer provided equipment, such as a laptop computer or a car, if this equipment is important to you;
(i) ask for the employer’s agreement not to contest your claim for unemployment compensation (if it looks like you’d qualify for unemployment comp);
(j) ask for your employer’s agreement to give you a good reference (or at least a neutral reference such as only a confirmation of dates of employment and positions held); and
(k) ask your employer for assistance from an outplacement or headhunter firm (that the employer pays for).
Your ability to obtain these benefits will depend on the circumstances of the situation, but they are something for you to think about. Certainly, if you don't ask for them, you probably won't get them. If you are represented by a union, consult with a union representative about your rights and options.
Some people try to negotiate for a temporary continuation of employment while they search for a new job, on the theory that it’s easier to find work if you are employed. Others may aim for the use of an office and telephone line at the old employer’s office while they search for a job, to maintain the appearance of being employed. You may want to consider these possibilities. But don’t lie to a prospective employer about your actual employment situation.
Carefully read anything your employer asks you to sign in connection with your termination. Almost always, an employer offering termination benefits will ask you to waive your rights to sue for discrimination, wrongful discharge and other potential legal claims or rights. If you’re seriously considering a lawsuit, don’t sign anything even if that means losing some of the termination benefits. You should be able to use COBRA rights to maintain your health insurance (unless you’ve engaged in “gross misconduct”). If you sign a document that waives your COBRA rights, you can still revoke that waiver for a limited period of time (which should be at least 60 days after your regular employer sponsored health insurance plan’s coverage ends). The assets in your 401(k) or other retirement accounts are yours in any event, so you don’t have to waive any rights to get them.
You may be able to get unemployment compensation. Do so if possible because unemployment comp will help to extend your financial resources.
Of course, start looking for another job as soon as you can. You can't build wealth for retirement unless you keep working. Losing a job can be one of the most emotionally difficult events of your life. But remember that it happens to large numbers of people every year; you are hardly alone. Don't lose faith in yourself. You'll have sunny days as well as cloudy ones. Hang in there and wait for the clouds to blow away.
Strange News: A Brazilian court has ordered a brewery to pay one of its beer tasters compensation for facilitating his alcoholism. See www.wtop.com/?nid=456&sid=1133982. Hmmmmm. They paid him to drink so now they have to pay him for drinking. What's his incentive to stop drinking?
(a) negotiate for as many weeks or months of termination pay as you can get;
(b) ask for payment of any bonuses, awards or commissions you’ve earned or accrued, or which you can reasonably expect based on your job performance to date (if the award was in non-monetary form, like a trip to Hawaii, ask for the monetary value of the trip);
(c) request payment for accrued vacation and sick days, and any other time off you've earned or been awarded;
(d) ask for continuation of health insurance benefits (remember that you have COBRA rights to retain your employer’s health insurance for 18 months even if your employer doesn’t offer anything else; even though you’d have to pay the entire cost of COBRA coverage yourself, it's still worthwhile);
(e) ask for continuation of other insurance benefits, such as dental coverage or life insurance;
(f) obtain a written statement of the balance in your 401(k) account and any other retirement accounts you might have with the employer, such as an employee stock option plan--the assets in these accounts are yours (except possibly for matching funds from your employer if you haven’t had the job all that long) and you don’t have to negotiate for them; but you should make sure you know how much is there;
(g) claim any stock options, restricted stock and similar incentive compensation benefits that you have earned or are entitled to;
(h) ask about retaining any employer provided equipment, such as a laptop computer or a car, if this equipment is important to you;
(i) ask for the employer’s agreement not to contest your claim for unemployment compensation (if it looks like you’d qualify for unemployment comp);
(j) ask for your employer’s agreement to give you a good reference (or at least a neutral reference such as only a confirmation of dates of employment and positions held); and
(k) ask your employer for assistance from an outplacement or headhunter firm (that the employer pays for).
Your ability to obtain these benefits will depend on the circumstances of the situation, but they are something for you to think about. Certainly, if you don't ask for them, you probably won't get them. If you are represented by a union, consult with a union representative about your rights and options.
Some people try to negotiate for a temporary continuation of employment while they search for a new job, on the theory that it’s easier to find work if you are employed. Others may aim for the use of an office and telephone line at the old employer’s office while they search for a job, to maintain the appearance of being employed. You may want to consider these possibilities. But don’t lie to a prospective employer about your actual employment situation.
Carefully read anything your employer asks you to sign in connection with your termination. Almost always, an employer offering termination benefits will ask you to waive your rights to sue for discrimination, wrongful discharge and other potential legal claims or rights. If you’re seriously considering a lawsuit, don’t sign anything even if that means losing some of the termination benefits. You should be able to use COBRA rights to maintain your health insurance (unless you’ve engaged in “gross misconduct”). If you sign a document that waives your COBRA rights, you can still revoke that waiver for a limited period of time (which should be at least 60 days after your regular employer sponsored health insurance plan’s coverage ends). The assets in your 401(k) or other retirement accounts are yours in any event, so you don’t have to waive any rights to get them.
You may be able to get unemployment compensation. Do so if possible because unemployment comp will help to extend your financial resources.
Of course, start looking for another job as soon as you can. You can't build wealth for retirement unless you keep working. Losing a job can be one of the most emotionally difficult events of your life. But remember that it happens to large numbers of people every year; you are hardly alone. Don't lose faith in yourself. You'll have sunny days as well as cloudy ones. Hang in there and wait for the clouds to blow away.
Strange News: A Brazilian court has ordered a brewery to pay one of its beer tasters compensation for facilitating his alcoholism. See www.wtop.com/?nid=456&sid=1133982. Hmmmmm. They paid him to drink so now they have to pay him for drinking. What's his incentive to stop drinking?
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