In limbo– or what it feels like to be a worker these days
Posted on December 5th, 2008 – 3:33 PMBy Kara McGuire
It was my husband’s birthday yesterday. He was born in 1974, at a time when the country was experiencing steep job losses. Apparently, job losses this November were the highest they’ve been since he entered this world. More than 600,000 jobs were lost according to the official number. And that doesn’t count everyone without jobs, including those who gave up the hunt long ago.
Never in my life have I worried about losing and finding a job until this year. At my first work holiday part in 1998, I remember some co-workers swapping tales about the horrible job market of the early 90’s and thinking to myself, “‘Hmmm…that’s so interesting that I’ve got to get back to the open bar.’”
This year, I’m wondering if anyone will mind if I stuff treats from the holiday dessert buffet in my purse?
Seriously though. Besides storing holiday sweets, what can workers do to prepare themselves?
In recent weeks, several people I know have lost their jobs. And a new survey found six in 10 CEOs plan layoffs in the next six months, almost double the number who said the same about jobs in the third quarter.
I’d have to be nuts to think that my job is secure.
My family has three months of bare minimum expenses saved. And with cable TV, a gym membership and a loose food budget, I know we could cut costs if necessary.
But should we be saving more cash instead of socking money away for retirement? Applying for a zero percent interest rate credit card? Cutting expenses now?
Let’s get a handy list going of things that either you have done or have thought of doing to secure your finances in case you lose your job. Maybe you already are laid off and can tell us what you’ve been doing to stay afloat.
12 Responses to "In limbo– or what it feels like to be a worker these days"
Buy a house well within your means, get a five-year (or so) ARM, and pay extra on it as long as you can so that when it adjusts your house payment goes way down. Fixed rate mortgages don’t do this, and you can’t just refinance if you’re unemployed. Of course, you have to be able to pay it down enough to deal with interest rate adjustments.
I’m looking forward to my new payment May 1.
-Ryan
Wow, Ryan, talk about living on a prayer (to use a lyric that probably has resonance for Kara and her generation)! I don’t doubt your approach has some merit, but for someone who might be facing a job loss in 6-12 months, your advice is highly risky.
I also don’t completely understand it, since the interest rate between a 5 ARM and a 30 fixed is about 1% right now. Why do something so risky when there’s so little gain?
So long as we live within our means and save, save, save, we might have a cushion when the pink slip arrives. But finding a job equal to the one we lost in this labor market is frightening. We just can’t sell our house either when prices have deflated and it takes a year to sell. The upside to all this is that our nation will be a wiser, and thriftier place because there are no more guarantees.
1. It’s not that risky — if you get a loan you can afford.
2. Because ARMs are unlike fixed rate loans in that paying extra on them reduces you payment instead of your term.
3. Because getting an ARM can save you from having to refinance if interest rates drop.
4. Because most people are unlikely to be unemployed for 5 years continuously, and if you are, you will probably lose your house even with a fixed rate loan.
5. The initial interest rate is lower, allowing you to use the money you save to reduce the principal faster.
It actually makes a lot of sense, and over time can make you more financially secure. ARMs aren’t “risky,” but, like I said, if you are stretching to get one, you probably shouldn’t.
An ARM is “risky” only in specific circumstances: you fail to overpay it substantially enough, interest rates rise after the fixed period, and you are or become unable to make the payments after the adjustment. If you feel you are likely to get into one of these situations, you should not get an ARM.
However, if you are able overpay some, you are likely to end up much better off, with a lower required payment over time, than with a fixed-rate loan.
-Ryan
Why not hold some of the retirement in a savings account instead of putting it directly in retirement? For example, instead of putting it right into retirement, putting it with the emergency fund…when emergency fund is at 12 months, pull out 6 months and put in retirement…then rebuild to 12 months, repeat. You could still max out yearly contributions, but should a job be lost, you wouldn’t be thinking, “gosh, I wish I could undo the last 6 months of retirement…”
It does seem a bit crazy to me to put away so much for your future life if your current life is not entirely secure…
As an early 90’s college graduate - can relate to the wonderful job market back then…it was indeed horrible.
2 thoughts: #1 - Our standard of living is based on one income instead of two. #2 - We became aware of the environment in our workplaces. I know some folks that are “bored” at work - and it always amazes me that they don’t do anything about it, as today’s bored person = tomorrow’s “right-sized” former employee.
And Ryan - 5 year arms are actually priced same as or higher than a 30 fixed. 30 fixed are easy to reset - pay a couple of hundred dollars for a modification and you can lower your payment when you have paid down 10% or more of your mortgage.
My husband was laid off a few years ago right after the birth of our fourth child. We had been paying down our debt for a while up to this point and had a few credit cards and a car loan left at the time of the lay off. We used his unemployment to pay off our car loan, with each check we paid more, and the payments got less and less. We cut coupons, stopped daycare, and scrimped on everthing. It wasn’t easy by any means, but we would never have made it if we hadn’t been working towards paying down debt before the lay off happened. I suggest getting rid of any debt now, add what you can to savings, and polish up that resume, just in case.
Good luck. It’s a scary time.
Agree with David on #1. It’s difficult to move to one income, since there’s so much to pay off first, but once you do you can replenish the emergency funds pretty quickly. My husband’s income is used only for Daycare (since it’s an expense we wouldn’t need if one of us is laid off) and the rest goes in savings. We did a retirement drop a bit ago because we were feeling guilty, but now we’re putting away about 1/2 a months expenses per month, knowing that we’ll only need to dip in if (please no) we BOTH get laid off at the same time.
I came out of college in 1991 and couldn’t find a good job until 1993.
I worked retail and restaurant work,
made $12k in 91 and $14k in 92 before
making more than that later. I learned
to scrimp and save because of that time. I hope people learn to it this time around.
Just like the State of MN families need to address budget issues by looking at both the revenue and expense sides of the problem. Too many people don’t start looking for a job until they’ve lost the one they have which is a mistake as now you’re competing against everyone else from your former company who is on the street telling the same story as you. Networking, talking with recruiters, watching job sites, and building your professional experience and skill level are just as important as the job you do every day for you currently employer. It’s better to leave on your own terms for an opportunity that presents a better future than to hope you get to keep the job you currently have. Change brings opportunity and those that embrace it and learn how to use it are those that come out ahead.
