layoffs are always a possibility. You may believe you’re irreplaceable, but unfortunately, the senior manager making job cut decisions doesn’t think the way you do. You may indeed be highly valuable and even underpaid, but let’s face it, bad things happen to good people because the people making decisions in organizations sometimes don’t know what they’re doing or make bad or politically motivated decisions.
Structure your finances to afford an income dip. Probably the area where I’ve seen more people get into trouble during the good times is to overspend on their housing expense. If you’re really stretched buying a home with all the associated expenses, consider what you would do and how challenged you might be on a reduced income. Now, if you lose your job and are out of work, you can generally collect unemployment benefits, but in most states and areas, those benefits typically replace a modest portion of your prior employment income. The pumped-up and inflated benefits paid during the job losses of the COVID-19 pandemic are certainly not the norm.
If you lose your job, batten down the hatches. You normally get little advance warning when you lose your job through no choice of your own. It doesn’t mean, however, that you can’t do anything financially. Evaluating and slashing your current level of spending may be necessary. Everything should be fair game, from how much you spend on housing to how often you eat out to where you do your grocery shopping. Avoid at all costs the temptation to maintain your level of spending by accumulating consumer debt. See Chapter 9 for more info.
Arrange to continue insurance coverage. Most importantly, that can include insurance coverages such as health insurance and possibly disability insurance and life insurance. Replacing these on your own will cost money, of course, but going without them will expose you to potentially catastrophic financial risks. Please see Chapter 11 for more details.
Evaluate the total financial picture when relocating. Sometimes when folks lose their job, they may find better opportunities out of the area that either require a move or, if a remote position, may allow you to live any number of places. Don’t call the moving company or pick your new home until you understand the financial consequences of the different options. In addition to evaluating the salary and benefits of a given job, you also need to compare the cost of living of given locations. You’ll want to pay attention to housing costs, commuting, state income and property taxes, food, utilities, and all the other major expenditure categories that I discuss in Chapter 9. Check online for cost-of-living information and calculators such as BestPlaces.net.
LOOKING AT LOWER TAXES OWED
When your employment income drops, the one silver lining is that your federal and state income tax owed for the year will be lower. You may actually have effectively overpaid those taxes earlier in the year when you had your full employment income and income taxes were withheld and paid on your behalf presuming you would be employed for the whole year at your full employment income.
UNDERSTANDING THE RISKS OF SMALL BUSINESS
This chapter focuses on personal crises and challenges, so you may be perplexed over why I would be talking here about starting or running your own small business, which many people aspire to do. The reason is quite simple — running a small business has many challenges, both personally and financially. And while I’m an optimistic person, I’m also realistic and know from years of observations that minor small-business problems can mushroom into big problems in short order.
Here are some tips to help get you started and increase your chances for long-term success and minimize the chances for big problems:
Prepare to ditch your job. To maximize your ability to save money, live as Spartan a lifestyle as you can while you’re employed; you’ll develop thrifty habits that’ll help you weather the reduced income and increased expenditure period that comes with most small-business start-ups. You may also want to consider easing into your small business by working at it part-time in the beginning, with or without cutting back on your normal job.
Develop a business plan. If you research and think through your business idea, not only will you reduce the likelihood of your business’s failing and increase its success if it thrives, but you’ll also feel more comfortable taking the entrepreneurial plunge. A good business plan describes in detail the business idea, the marketplace you’ll compete in, your marketing plans, and expected revenue and expenses. Small Business Development Centers (http://AmericasSBDC.org), are located in each state with branches statewide to assist with business plans and multiple aspects of small business. They offer great services that are underutilized. And most have highly educated and trained staff. You've already paid for most of their services with your tax dollars. Business plan assistance, marketing, and social media training are offered at no fee. Seminars such as QuickBooks training are the most reasonably priced around.
Replace your insurance coverage. Before you finally leave your job, get proper insurance. With health insurance, COBRA regulations require many employers to allow you to continue your existing coverage (at your own expense) for at least 18 months. According to the U.S. Department of Labor: “The law generally applies to all group health plans maintained by private-sector employers with 20 or more employees, or by state or local governments … In addition, many states have laws similar to COBRA, including those that apply to health insurers of employers with less than 20 employees (sometimes called mini-COBRA).” You can also shop for health insurance on your own and, depending upon your household income, may qualify for a reduced price (subsidized) policy. With disability insurance, secure coverage before you leave your job, so you have income to qualify for coverage. If you have life insurance through your employer, obtain new individual coverage as soon as you know you’re going to leave your job. (See Chapter 11 for more details on insurance.)
Stay on top of your income tax obligations. When you run your own business, it’s 100 percent on you to make your income tax payments, which you’re required to do through quarterly estimated tax payments. Equally importantly is to reserve and set aside that tax money so that you have it ready to use when the payments are due. I’ve seen too many small-business owners dig themselves into big financial holes and in the worst cases end up in financial ruin because they failed to plan for and make their quarterly estimated income tax payments.
Establish a retirement savings plan. After your business starts making a profit, consider establishing a retirement savings plan such as a SEP-IRA. Such plans allow you to shelter up to 20 percent of your business income from federal and state taxation.
Facing a medical crisis
Our personal health is often taken for granted when things are fine, which thankfully for most people is nearly all the time. But a health challenge, typically unforeseen, can turn your life and emotions upside down.
To keep your sanity and to ensure your best health, here are some important steps to take and points to keep in mind:
Check your coverage. Make sure your health insurance coverage is being paid and in force. While insurance companies can’t boot you from your coverage for a medical problem, you can lose your coverage if you haven’t been paying for it. If your coverage has lapsed or you simply never bothered to get coverage thinking you wouldn’t need it, get signed up pronto!
Take time off
