19 Be prepared for anything

If the COVID-19 crisis taught us anything, it’s that anything can happen to your job, and in some situations even a well-managed career isn’t enough to completely save you. That’s why it’s important to plan for those situations, and have some idea of what to do when they arise.

19.1 What can happen?

To begin preparing for “anything,” which might include suddenly finding yourself without a job, you first need to contemplate what kinds of problems might occur. That way, you know what you’re attempting to mitigate. This list will vary tremendously from person to person, and especially from region to region, but you should consider events like these:

  • Getting laid off, for any number of reasons outside your own control—like an economic crash that forces your company to reduce headcount.

  • Having an accident and becoming injured or extremely ill, forcing you to leave your job or take significant unpaid time off work.

  • Running out of work, for independent contractors.

Spend some time thinking about what might go wrong, because these are the things for which we’ll need a back-up plan. But sometimes, “preparing for anything” can mean preparing for something good, like an amazing job opportunity that just comes out of nowhere! Since that type of event doesn’t usually result in panic, a loss of income, and other negative elements, it’s easier to plan for—but it’s still worth planning for it.

19.2 Basic preparedness goals

The idea behind preparedness is to imagine reasonable situations that might occur, and then make plans to mitigate the negative fallouts. For the purposes of this book, I’m limiting the discussion to situations where you’ve lost a job, gotten injured, or have simply run out of work as an independent contractor. Those situations all have some common elements, the primary one being loss of income.

With some reasonable situations in mind, and with an understanding of their primary negative impacts, you can start to develop preparedness goals. For example, with any situation that leads to loss of work or income, you may need plans for how to

  • Cut back expenses and protect cash reserves

  • Quickly obtain new employment or work

You may imagine different situations for yourself. For example, given recent history you might imagine a situation where a global pandemic breaks out, basic supplies like fresh food become limited or difficult to access, and you wind up having to work from home. In that situation, you might adopt different preparedness goals, such as

  • Ensuring the family can remain safely at home as much as possible

  • Ensuring sufficient non-perishable food is on-hand to mitigate any supply shortages

  • Ensuring a space can be converted to a work-from-home office

You’ll have to decide—based on your own experiences and concerns—what’s important to you, what to prepare for, and what preparedness goals to set. For the remainder of this chapter, I’ll focus on the job- or work-loss situation, and offer some suggestions for how to think about preparing.

19.3 Cash on hand and credit

The first element of my own backup plan is cash on-hand. My family has a well-defined budget in the event that I am unable to work or am out of a job. That budget eliminates every possible discretionary expense (like Netflix or other subscriptions), and cuts back on required expenses as much as possible. We might reduce our internet speeds to a cheaper plan, for example, and eliminate all dining out in favor of making less-expensive meals at home. We strive to keep six months’ worth of that budget readily available for immediate use if needed. “Readily available for immediate use” can mean a variety of different things, some more immediate than others:

  • Cash in a savings account

  • Access to a secured line of credit, such as a home equity line of credit

  • Penalty-free access to funds in a retirement account

I don’t regard my stock market investments (mainly my retirement account) as “readily available.” While I could certainly sell stocks to generate cash, if my disaster was caused by an economic crash then my ability to sell those stocks might also be negatively impacted. The point of this list is to know where you can absolutely get enough cash, immediately, almost no matter what has happened.

And I want to acknowledge that not everyone has access to a supply of cash-on-hand for emergencies. I certainly didn’t when I was starting out, but it was one of the first things I prioritized in life, even above furniture and video games. Gradually building that supply (and it took a few years) gave me the flexibility I needed in the workplace, and the peace of mind I wanted.

Also be sure to consider how your family could access this cash if you were unable to do so, perhaps through a serious injury. If you’re relying on funds from a retirement account, for example, make sure your family is able to access those funds (speak with an attorney or banker to understand how to set that up).

“Six months’ cash on hand” is a number I came up with that makes me and my family comfortable, and it’s a number that our financial adviser tells us is a common target. For freelancers, some advisers recommend nine or even twelve months. But we’re reasonably confident that I could find some kind of work in the six-month time frame, and we use the other elements of our backup plan—which we’ll cover in the upcoming sections of this chapter—to supplement that number. The standard guidelines suggest having access to cash to live on for three to six months, but you’ll need to come up with your own number that makes sense for you, your family, and your own level of confidence in your ability to find new work.

Also consider your available credit. In the event of a disaster, you may want to conserve your cash on-hand as much as possible, so that you can stretch it and make it last longer. Credit—in the form of credit cards, for many of us—can be one way of making your cash last longer. But to use that credit means you have to ensure it’s available. My family’s policy, based on our financial adviser’s recommendation, is to have at least 30% of our credit lines free at all times—we never max out our credit cards unless it’s a dire emergency, and then we prioritize paying them back down under the 60% mark. That 30% number is a common rule of thumb, and one we feel comfortable with and capable of managing. Your circumstances and comfort level may differ, and consulting with a financial adviser can help you settle on your own number. In a true disaster, we’d feel fine maxing out our credit lines and making only the minimum payments on them, so as to better conserve our cash reserves. Let me stress that this is not the usual approach, and many would advise against it. Depending on the terms and interest rate of your credit cards, this could get very expensive over time. You’ll need to review your credit terms to decide if that’s an acceptable approach for you. My point is to have a solid plan, well in advance, of what you’d do if you had to.

19.4 Social safety nets

Social safety nets refer to government programs designed to protect its citizens in times of need. These safety nets often include various ways of providing money, medical care, or other resources to people affected by natural disasters, economic downturns, personal job loss, or other emergencies.

As part of your preparedness plan, make sure you understand whatever social safety nets you may have available to you. For example, in the United States, full-time employees who are dismissed without fault (that is, laid off or furloughed) can usually collect from a state unemployment fund. Know how this works ahead of time, including where to register, how much the benefit covers, and the length of any waiting periods. You should have an “emergency plan” that includes the websites and forms you will need to use to file a claim. In the United States, “how this works” differs from state to state, and of course other countries have completely different systems. Start with your government’s websites as you begin creating your plan.

Remember: the time to discuss your airplane life vest is before you need it, not as the plane is going down. The time to understand your social safety nets, and how to use them, is before you need to use them, not the day after you get laid off.

And just as with your cash on-hand plan, make sure your family knows how to file and access your social benefits on your behalf, if needed. Having a written, documented plan, stored somewhere that everyone in the family can access it, is a great way to make a stressful situation a little more bearable if the time comes.

19.5 Insurance

Most adults are familiar with the idea of life insurance, and it can be a valuable tool to have. My own financial adviser recommended I take out a term life policy, with a term long enough to carry me through to retirement age. His theory is that by retirement age, my actual retirement plan will be ready to go and so I won’t need the insurance any more. If you buy term life insurance when you’re young, it’s amazingly cheap (a healthy 25 year-old in most parts of the United States can buy a $2 million policy for a couple of hundred bucks a year). Term life costs a fixed amount each month, and pays out a fixed benefit until the term expires. Once the term expires, you stop paying premiums and the policy no longer pays any benefit.

Get good advice! I’m not a financial adviser and don’t play one on TV: I’m offering you these suggestions as a starting point for a conversation with a qualified adviser. They’re the ones who can look at your specific situation and make specific, actionable suggestions. If you want to use my example as a starting point, it can help them understand what you’re looking to solve for.

But death isn’t the only disaster that can befall us, and there are a variety of different insurances that you can consider for your backup plan. Before we go into those however, I want to caution you against relying solely on insurance provided through your employer—that goes for any insurance, including life and disability. Employer-provided insurance can be a wonderful supplement, and in the United States it’s often inexpensive. But if you lose your job, it goes away, and losing your job is one of the disasters we’re trying to mitigate. Try not to rely on employer-provided insurance as a primary part of your plan.

With a reminder that I can only speak for the situation in the United States, but that the basic concepts are reasonably global, here’s some of what you and your adviser can consider in the insurance world:

  • Life insurance comes in two broad flavors, whole life and term life. Whole life tends to cost more, but it stays in effect until you either use the policy or cancel it. If you cancel it, it’ll often have a cash value that can be returned to you. Term life is valid for a specific period of time, and is often much less expensive.

  • Mortgage insurance is a little bit like a term life policy that extends for the duration of your home mortgage: you pay a monthly percentage of your mortgage, usually X to Y percentage, and the insurer agrees to pay off your mortgage for you. That way, if something happens to you, your home is paid off and it’s one major thing your family doesn’t have to worry about.

  • Disability insurance is designed to replace some or all of your income if you are partially or fully disabled and unable to work in your accustomed field. Short-term disability is one thing I don’t mind buying from my employer, as it’s only designed to cover a few months’ of disability and kind of implies I’d be on the job to begin with. Long-term disability policies usually kick in after a few months have passed, and are usually structured to pay out for life, if you’re permanently disabled.

  • Medical insurance helps offset the horrific cost of medical care. In the United States, individuals or employers currently purchase it on the open market through private health insurance companies. It’s usually provided to full-time employees by your employer, although in the event you lose your job you should have a plan for obtaining replacement coverage, which varies widely depending on the state where you live. Do that research now, while you're making your backup plan. (In some other countries, health insurance costs may be partially or fully funded by the government.)

According to numerous studies (http://mng.bz/5WRz), medical bills are the biggest cause of bankruptcies in the United States. Whether or not you have health insurance, it’s easy to fall into debt problems through a medical emergency, where you not only start racking up huge medical bills, but may also lose your ability to work. To help avoid debt through medical emergencies, my financial adviser has recommended a long-term disability policy, which I carry to this day, and relying on my cash on-hand fund to cover the short-term disability period. In other words, use the cash until the long-term policy kicks in. I also know how to sign up for independent health insurance if needed (in my home state of Nevada, the state runs a website that offers policies), and I have a term life policy to carry my family through until my retirement age. That term life policy is also sufficient to cover our mortgage, so we don’t carry separate mortgage insurance.

19.6 Prestaged job hunt tools

As with all disaster planning, the time to get ready to job hunt is not when you need to job hunt, but before you need to job hunt. Here are the top tasks to stay prepared for conducting a job hunt:

  • Keep your LinkedIn profile up to date and ready to help you start creating résumés.

  • Watch your personal brand and social media footprint, so that any publicly visible portion of your life is professional-looking and “job-hunt ready.”

  • Periodically browse jobs in your area (or across the region or country, if work from home is a common option in our trade) and your field to see what employers are hiring for these days. This lets you keep your skills relevant, so that if you have to job hunt, you’ve got at least some of the right skills for the current marketplace.

  • Continually grow and maintain your professional network so that it’s there to help you if you need it.

  • Make sure you’ve got a set of clothes that fit and are appropriate for any kind of job interview. For me, this is a dress shirt, dress slacks, blazer, and tie.

These preparedness activities are different from the ones discussed elsewhere in this chapter. Things like buying insurance policies or documenting unemployment benefits are a one-time task you can do, file away, and not worry about till you need them. But staying prepared for the job hunt is an ongoing activity. You should view it not just as disaster preparedness, but as a normal, daily part of any healthy career. And here’s another bonus for keeping your job tools ready to go: if an opportunity (not an emergency) pops up, you’ll be primed and ready to seize it!

19.7 Action items

For this chapter, I’d like you to start considering what could go wrong, and building a plan to prepare for and mitigate it:

  • Make an appointment with a financial adviser. They’ll have experience with other people who’ve gone through tough times, and they can provide good advice that’s specific to you, where you live, and your life situation. Explain the types of emergencies you’re hoping to plan for, and listen to what they say.

  • Note that, in the United States, I prefer a fee-only adviser, which is one who collects a flat fee for their time. The alternative is a fee-based or commission adviser, who makes money from the products they sell you.

  • Many countries have certifications for financial advisers, and an internet search should turn up appropriate local agencies no matter what country you live in.

  • Look closely at your monthly expenditures, and develop a budget for emergencies. That budget should clearly indicate what gets cut and what doesn’t, so that in an actual emergency you can quickly start to take action. My plans even include the websites and phone numbers of services and subscriptions I’d want to quickly cancel or scale back.

  • After speaking with an adviser, start looking at the insurances you might want to purchase to help cover emergencies. Remember that dying isn’t the worst, or even necessarily the most common, thing that can financially affect your family.

  • Research the social safety nets available to you, and begin documenting what they are, what they offer, how you apply, and how long it usually takes them to begin. Keep all of this documentation in a place where your family can quickly access it at need.

  • Implement a monthly or quarterly “job tools update” program, so that you can keep your job-hunt tools in ready-to-use condition. Remember, sometimes these tools will be used for a good reason, like taking advantage of an unexpected opportunity!

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