Pat and James Houston of East Orange, New Jersey, earned a joint household income of $160,000 before Pat lost her job last December at a financial services firm in New York City. After Pat was handed a pink slip, the couple’s household income was cut in half. Pat, 38, remains one of the 14.5 million unemployed, according to the July 2009 report from the Bureau of Labor Statistics.
Despite the loss of income, the Houstons kept up with paying their bills, never missing one payment. Staying afloat during a crisis requires planning and a lot of discipline. If you or your spouse has lost a job or if you suspect a job loss is in your future, here are some tips to help you survive.
Negotiate a severance. “My employer gave me 90 days’ notice, so I was still on the headcount and getting full pay until March,â€
explains Pat, who also received a four- month severance package. Despite their recent cost-cutting, many companies have either maintained their severance policies (65%) or made them more generous (19%), according to the 2008—2009 Lee Hecht Harrison Severance & Separation Practices Benchmark Study.Shave your budget. “This is the time to look at areas where you can start shaving instead of cutting, because you don’t want to go into deprivation,†advises Barbara Stanny, author of Secrets of Six-Figure Women (HarperBusiness; $13.95). Stanny warns against going to extremes when cutting back. “Deprivation leads to the binge and purge cycle. Some may go on spending binges because things seem so bad, and that leads to a downward spiral of debt.†To shave, Stanny advises writing down in separate categories where money is spent; then, look for places to shave back. The Houstons are taking the shaving approach. They used to eat out at least twice a week, but now they cook at home more and shop at Sam’s Club where they can buy groceries in bulk. The couple still visit their favorite restaurants occasionally, “just not nearly as much,†adds Pat.
Save more. “We have better savings this year because we’re watching what we spend,†says James, 43, a customer service representative at a telecommunications company in New York. Once his wife lost her job James began taking his lunch to work. “I looked at how much I was spending–that was a big problem. I could spend $8 for breakfast, and then spend more on snacks during breaks. Once you add in lunch, I was spending up to $20 a day–that’s $400 a month.†He brought his monthly spending down to $100 and also stopped driving to work to cut out the $12 per day parking and toll fees.
Ginita Wall, a CPA and co-founder of Women’s Institute for Financial Education, suggests eating takeout from your favorite restaurants instead of dining in, to avoid the drink bill and tip. “Two dollars or $5 a day goes far. If you invested $5 a day from age 22 to 65 you would have a million bucks, assuming 9% growth,†says Wall.
Secure additional sources of income. Four years ago the Houstons purchased a two-family home with the understanding that the rent from the second unit would make the mortgage manageable on one income, if need be. “Renting out the apartment is really what helped us,†says Pat, who receives $1,300 a month in rental income. In addition, she’s followed her passion and started her own company, Pat Houston Photography, something she never had time to pursue when she was employed full time. She expects to earn only about $5,000 from the business this year, but every little bit helps.
An expanded version of this article will appear in the November 2009 issue of Black Enterprise magazine.
Wealth For Life Principles
1. I Will Live Within My Means
2. I Will Maximize My Income Potential Through Education and Training
3. I Will Effectively Manage My Budget, Credit, Debt, and Tax Obligations
4. I Will Save At Least 10% of My Income
5. I Will Use Homeownership as a Foundation For Building Wealth
6. I Will Devise An Investment Plan For My Retirement Needs And Childrens’ Education
7. I Will Ensure That My Entire Family Adheres To Sensible Money Management Principles
8. I Will Support the Creation and Growth of Minority-Owned Businesses
9. I Will Guarantee My Wealth Is Passed On To Future Generations Through Proper Insurance And Estate Planning
10. I Will Strengthen My Community Through Philanthropy