Early hints of spring have evolved into unmistakable signs of nicer days to come: flowers vigorously blooming, trees greening up, oriole sightings. But the forecast this week calls for an unappealing string of rainy days. And so it is with the state of the economy. Ups and downs. Hopeful signs and unexpected threats. (I’m looking at you, swine flu.) Mixed messages, at best.
Yes, our economic transition from cold, dark, dreary days to bright, sunny ones seems to be lagging Mother Nature’s seasonal shift a bit, and it’s clear that we’re “not out of the woods yet.” It’s enough to discourage even diehard optimists and rattle even those in perfectly secure financial situations. So. how best to gut out the remaining challenges, and emerge from this particular forest in a position to bask in the sunshine that hopefully awaits?
The way to think about this came to me, as these things often do, in a different context, as business coach Gail Zona of Next Step Business described a recent group coaching class she’d given. The “Survival Skills” approach she recommends to businesses struggling in these hard times seemed to hit just the right note: realistic about current challenges but not resigned to eternal gloom. So, at the risk of exceeding longtime readers’ tolerance for “great outdoors” analogies (1), I’d like to explore how this applies to our personal financial situations as well…
Essential to survival are three items, in order:
Or as that translates to personal financial planning:
1. Cash reserves
3. A plan
As nearly every scout (and client of mine) knows, it’s best to be prepared. So chances are you’ve got a cash Emergency Fund, the precise goal of which is to cushion against times like these. Unless your income is very secure, it’s not a bad idea to have more cash reserves set aside now than you ordinarily might. Or perhaps you had an Emergency Fund, but recent events drained it. Like a hiker without water, a financial plan without sufficient cash can’t function well for long. So if you find yourself in this situation, your top priority is finding ways to replenish, or at least stabilize, your cash position. But how?? The most direct route is often to slow cash outflows. Depending on how difficult your situation, “normal times” actions such as delaying home improvement projects, driving your old car a few more years, or cutting costs on Netflix, lattes, etc., might do the trick. Others in more dire circumstances may need to consider higher impact solutions such as combining households with other family members, getting a roommate, or moving to a lower cost home or community, even if it’s just as a stopgap measure.
Get Free Money
In either case, aim to capture all “free money” available to you! Make sure you haven’t overlooked valuable employee benefits, such as Cafeteria Plans and Employee Stock Purchase Plans, at work. You may also be able to reduce cash going out the door by refinancing at today’s historically low mortgage rates or by taking advantage of recent stimulus measures. These include such things as tax breaks for first-time homebuyers, premium subsidies for COBRA Continuation Coverage, rules making attractive refinancing terms available to a wider range of homeowners, and more. And (at the risk of sounding like a broken record) not having your income tax withholding set too high is an excellent way to gain access to your cash right now, instead of waiting until next April’s tax refund. So is not paying for insurance, or anything else, you no longer need.
Find an Income to Replenish Your Cash Reserves
So yes, staying hydrated will buy you some time, but you’ll also need to find food. Or, in personal finance parlance, without an income to replenish your cash stores, eventually they’re going to run out, as there’s only so much “not spending” you can do before the system completely breaks down. As survival expert Bear Grylls, the host of Discovery Channel’s Man vs. Wild, puts it: “If you’re going to self-rescue, you’ve got to move. If you’re going to move, you’ve got to have energy, and if you need energy, you’ve got to find food. The people who survive are. the people who leave their prejudices behind and do whatever it takes, no matter how unpleasant it is.” In his case, he’s referring to ingesting yak eyeballs and camel stomach juice, but the man makes a good point. Without adequate sustenance, you won’t have what it takes to come up with a plan to get from where you are to where you want to go. So times like these may call for out-of-the-ordinary measures for generating income. This might include selling assets you’d prefer to keep (Sno-Cat?), taking on a second job, or if you’ve been laid off and can’t find work in your usual role, considering a career change or a temporary gig – whatever is needed to buy time and keep you in essentials until your options expand.
Coming up with strategies for, as Bear calls it, “self-rescue” is your final critical task for survival. Yes, your options may expand as a result of the return of better times, and I’m not one to discount a little good luck. In the meantime, assuming you’ll have to self-rescue, and planning accordingly, is the smartest way forward. This is another case where “Be Prepared” is an excellent motto. When teen hiker Scott Mason was lost in the White Mountains recently, knowing from Eagle Scouts that he could find shelter under evergreen trees and start a fire using hand sanitizer gel (!) put him in a position to survive long enough until help arrived.
Know Your Options
To survive – and eventually thrive – financially, start becoming familiar with your options for several “What If” scenarios, both good and bad. What resources from the government/community, your former employer or co-workers, your alma mater, social networking sites, etc., are available to help? How might you use your current skills, assets, and knowledge in ways you previously hadn’t considered? For example, if you are IT professional laid off from a financial services firm, you may find job opportunities are better in other industries. If you are out of work for a while, you may find you have time to clip coupons, shop for deals, plan and cook meals at home instead of eat out, plant a recession garden, do your own yard work or other maintenance… Or you might finally getting around to organizing your home. If it’s been a while, who knows what you might find (lost gift certificates, that missing diamond earring, or in a recent personal example, a staple gun)? (2)
Finally, Set Milestones
As a final step, set milestones for when you’ll shift from Plan A to Plan B to avoid sliding too far down a slippery slope. For example: “OK, I prefer not to drive more than ½ hour to and from work, but if I can’t find a new job in 4 weeks, I’ll expand my range.” Or “If the credit cards aren’t paid off by November 4, I’ll take on that second job, & pay cash at all times.” Or “If our Emergency Fund isn’t at its target by July 4, we’ll delay our trip to Cabo until next year.”
You get the idea. The range and depth of appropriate responses to our current economic malaise varies dramatically from family to family, but the overall approach does not. Start by practicing the skills and carrying the tools to ensure survival, address survival needs in order of priority if and when you need to use them, and plan for self-rescue. With any luck, you’ll find yourself face-to-face with either a) a trail junction with legible map, or b) a search team that leads you to safety, long before you ever need to consider consuming yak eyeballs or camel stomach juice.