One Big Way to Get Intense About Financial Independence

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You are going to be fired from your job this Friday.

Read that statement again. Close your eyes for a moment and imagine if that sentence were true in your own life? Would you be ready?

Most people would panic if they came into work and found a pink slip, simply because they’re not in a financial place to handle such a situation. They’d furiously apply for unemployment benefits, start chugging the Pepto-Bismol, and hurl their resume out there to a hundred new places, hoping (praying) for a new job to come along quickly.

How could one be prepared for such a blow? In an uncertain economy, such a blow could happen at any time, no matter how “safe” you think your job is – do you remember the “safety” of the Enron folks in 2002-2003, for instance?

Right now, start acting as if the above statement is true at all times. Believe constantly that you’re just a few days from being fired and then try on a few of these new behaviors for size.

Stop spending foolishly This is the biggest first step. If you’re spending money in needless ways, curb them severely until you’re in a state of financial independence – and if the thought of getting fired makes your stomach tighten, you’re not there yet.

Start building a solid emergency fund Count every dependent you have. For each one of those, you should have at least two months of living expenses in a high-yield savings account – I’d recommend three months per dependent. That way, if everything falls apart, your family is protected.

Build a real budget This doesn’t mean pulling numbers out of the air and assigning them to arbitrary categories. This means counting up every dime you spend for a month, sitting down with all of it, figuring out where you can cut the fat, and setting some goals for the next month. Do that over and over again and you’ll start feeling in control of your spending.

Pay off all of your high-interest debt Sit down with all of your debts and construct a debt repayment plan. Given that this is urgent, I recommend starting with the debt with the smallest balance, just to get rid of that monthly payment, and keep working from there.

Minimize your required monthly bills Also look at all of the bills you pay in a given month. Could any of them be trimmed back a little or even eliminated? Look especially at any entertainment bills and any memberships you pay for. Do you use these enough to justify the cost? Remember, every dollar of fat you trim here will roll straight into getting rid of those debts much faster.

Start firming up your social network Invest some time touching base with as many people as you know. See what they’re up to these days. You shouldn’t actually look for job opportunities, but instead look for opportunities to help out your social network. Make connections between people and such. If your social network is strong, when the moment comes and you do get that pink slip, you’ll have a lot of strings to pull to help you get back on your feet.

Keep your resume polished The best time to get your resume in great shape is right now, when you don’t have the stress of needing to cram something together. Polish it up and get it looking good.

Spend your spare time developing skills or laying the groundwork for a side business. Don’t spend your spare time watching American Idol – spend it improving yourself and making sure you’re in a more secure position with multiple streams of income.

This is a waste of time since I’m not going to be fired! There are two immediate responses to this complaint. First, when that pink slip shows up on your desk, this “complaint” will seem really foolish. Second, even if that pink slip never does show up, executing these steps over a period of time will create a situation where you can walk away from your job whenever you want to – the feeling of true financial freedom.

So take that phrase and put it all over your environment so you’ll see it time and time again. It will remind you throughout the day to keep your eye on the ball and put yourself in a position where it doesn’t matter any more.

Here it is, one more time:

You are going to be fired from your job this Friday.

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38 thoughts on “One Big Way to Get Intense About Financial Independence

  1. Great advice to get in a realistic financial mindset, Trent.

    I just discovered the You Need a Budget (YNAB) software, and it has revolutionized how I budget. I’d been using Quicken for years, but it does not operate on the concepts of YNAB. Check it out at youneedabudget.com.

    YNAB, Dave Ramsey’s principals and reading Trent’s post have become the bedrocks of my financial peace of mind.

  2. Great article! I’m sending it to all my friends.

    If I were going to be fired this Friday, my employer would most likely have to give me at least 7 months of severance, but that’s a unique position to be in. I like the reminder to focus with urgency on what can be changed.

  3. The one thing with this sort of worry, at least for me, would be about the “paying down debts” part. Granted I know that I’ll have more money in the long run if I pay my debts faster. But losing your main source of income very quickly would make me wish I had that money instead of putting it towards debt. Silly head games…luckily my only debt is student loans, but I’ve still got quite a deal of money owed still. With interest rates at a fixed 4.5% and variable currently 6%, they’re not as high as most credit card rates. I usually do pay extra towards my loans, to get them down as low as possible. But without a job, I’d go back to paying the minimum, no extra. The minimum has me set to pay off the amount eventually, and that’s what’s usually automatically deducted.

    I’m just saying that my priorities would definitely shift if the pink slip came. At any rate, your post is still very good advice. Until bad things happen (if they happen, not when, of course!), I’ll be actively paying down my student loans debt, and continue to stash money away in my emergency fund, and other investments!

  4. Good points Trent.

    I didn’t lose my job, but my emergency fund came in very handy when I had an unexpected bill come from the IRS last month! I can’t say enough about the piece of mind that comes from having a solid ‘murphy” fund!

    April, you are in a unique situation! It’s almost like you have an incentive to get fired! Of course I know you don’t want to but at least you know you’d have some time to get back on your feet!

  5. Trent another great article. My husband just had his hours cut in half and we did not see it coming. Luckily we have a pension and no debt.

  6. Trent,

    What a thought provoking post.

    I worked for 20 years straight, before I ever collected a dime of unemployment. But, after the start-up I worked for failed during the tech bubble in 2001, I found myself out of work for almost six months. And, I support a family of four on a single income.

    Long-story-short, being frugal with very little debt helped a lot. As did, having an emergency fund. I highly recommend it, before you need it.

    Bret

  7. Great post. We’ve gotten our emergency fund done, and recently got all our debt paid off!

    I don’t necessarily agree with the highest paid debt first. I’m not a Ramsey-purist, though, either – going smallest to largest. I like his snowball approach where one payment rolls into the next. Depending on the interest and minimum payments, though, I think it’s worth looking at it both ways. The smallest debts may be easiest to knock out and more easily get a big bang on the other debts. If you’ve got a couple of low-balance cards – no matter the interest – get them out of the way.

    Once you get to the big ones (say, a $5,000 credit card, and a $8,000 card), then you start looking at interest rates a bit closer. If they are close, hit the smaller one. If there’s a big difference, hit the high interest one hard.

  8. “Start firming up your social network.”

    This is great advice. When you are out of a job, that’s not the time to call for favors from people you haven’t been in touch with. Keeping up with them regularly will help you build trust and that will help carry you when times are tough :)

  9. I have a question that has nothing to do with this post, but I don’t know the answer and I bet you can help me.

    I know I should give up fancy lattes and brown-bag my lunches. And this should save me at least $20-$50 a week. But, how do I translate that money, which is not getting spent on luxury or convenience items, into savings? It seems like every tine I cut down on one expense, another one just comes along to gobble up the savings. HELP!

  10. While I’m one of those who prefers not to think of such situations as a possibility, I do prefer to think about preparedness in many ways for a variety of “what if’s”.
    Just like having any type of insurance, a family or single needs to prepare for any event…always have a Plan B. For example, while it’s easy to see that my family is healthy now, perhaps it’s tempting to not renew our healthcare policy at my husband’s work. Well, we’ve had 2 broken arms in 4 years, and had we scrimpted on ins., that would have been an expensive little gamblethat we would have lost!
    Likewise, I feel a sense of security with a pantry full of food. Certainly, that would be a godsend if the job situation you outline were to happen. In my downstairs pantry, freezer, and kitchen cupboard, I figure that I have enough food right now, to feed my family of 4 at least 30 days worth of a variety of meals. And having simple recipes in my head (soups, casseroles, etc..)to make the food stretch if need be.
    This is also why we are working hard to pay off our mortgage. It is very easy for me to see that life without a mortgage and a pantry full of food would be much easier than fearing the repo man and being hungry. Next step…solar panels! Then we’d have our home, electricity (which includes heat)and food security pretty much paid for.
    Plus, if my husband were to be let go, he’d also have about a year of severance coming to him.

  11. Right after 9/11, my husband’s entire company except 2 people got laid off. And he lived in LA, which was pretty far from everything happening in NY. You really never know. Things happen every day out of your control. Your boss could be running the company into the ground and you’d never know.

    I’ve been self-employed for 7 years and love it. It has its ups and downs for sure, but it’s so much more rewarding having the kind of life and work I want to be living. It’s forced me to be smart about money and appreciate the tight times as much as the windfalls. It’s really interesting to not get paid for several months sometimes, then get a huge check. We spend our tight times going to free concerts and shows, art gallery openings that serve free snacks and wine, and movies in the park during summer. The skimpy times are almost more fun than the financially blessed times.

  12. Everyone in New York spends most of their income on rent, regardless of if they’re making 25k or 250k. It seems few people really save. I’d go broke if I lived the kind of lifestyle some people here live. My husband and I love walking around, having a picnic in the park, going to the museums on free days. There was a woman who wrote a book about not shopping for anything besides food for an entire year in New York and she paid off her debts and went into the new year with several thousand dollars. I personally find being frugal and creative with my activities and respecting my money is far more rewarding than eating in fancy restaurants.

  13. Trent…I am the guy in your article…I have lived the very experience you described in this article. I will tell everyone who reads this article that what you suggest is for now, not after you get the pink slip. I was absolutely crushed when this happened to me…and not only me, but my family as well. I had 3 kids living at home. I will add this piece of advice, give yourself options. I’ve since moved from manufacturing to insurance & financial services. I place a resume on careerbuilder recenlty and had approx. 20-25 responses. I’ve done everything you suggested in this article and then some. I’ve vowed to NEVER allow anyone to have that much power in my life again. The only way for me to accoplish that was to do the very things you mention in your article. I would offer this last piece of advice to those who read this and it could possibly be the most important suggestion of all…today is Saturday and Friday’s coming, don’t procrastinate…

  14. I like this a lot. Of course, financial independence is one of my things. :) Right now, I’d be in decent shape–could support myself for about a year, two if I really had to, without a job. And I usually keep my resume up to date since so far I’ve job hopped a lot.

  15. Which comes first, the emergency fund or the high interest debt? While my credit card debt could be paid off in a couple of months, I imagine some people could take years to pay off all their cards. Dave Ramsey says to pay yourself first–and I tend to agree when you have a lot of debt. Any thoughts?

  16. my first reaction? YESSSS!!

    I’m quitting my job next month to move to New Zealand. Getting fired would allow me to collect unemployment benefits. And since i’ve been with this employer for four years and had excellent reviews the whole time, i don’t think a firing (in this case it sounds more like a lay-off) would affect future job prospects. …not to mention i don’t plan on staying in my industry!

    but yes, i have to say i’d be just fine. and i also don’t agree that paying off debts would be a great short-term idea–you should hoard as much money as possible when facing a firing. I mean, who cares if you are debt-free if you don’t have the cash to pay your rent?

    but i get the gist of the article–using a possible firing as motivation to get your sh*% together.

  17. This is way too true, Trent. Unfortunately, I learned this the hard way. Years ago I chose a job because I thought it would be more stable than another I was applying for because it was a big company and could ride through a recession better. We had a big name client, which made it even better, right? Does the name Worldcom sound familiar?

    When that all went bust, I didn’t get hit as bad as some of my colleagues, I unfortunately didn’t have enough in savings to cover my expenses and ended up in huge debt where I had none before. I just recently paid all that off, and now we’re heading into another economic crash. I learned my lesson from before and am in MUCH better shape. I have low expenses, even though I could afford more, decent amount in savings, and just switched to a higher paying job before any big layoffs happen and I’ll be competing with more workers. The higher amount of income should at the very least allow me to stash a larger amount of reserves. But I’ll never again believe that any company or any job is any more stable than any other, or ‘job security’.

  18. I think all the advice is good, but have a question: What does “financial independence” really mean in this context? If I am 30 years old with 2 children, I would likely need greater than $2 million to accumulate “lose my job and never have to work again” money. Is that financial independence? (That would be my definition.)

    If the definition implied here is “keep yourself afloat until you find a new job,” that is hardly “independent” in my worldview. The idea of having an emergency fund to avoid running up credit bills is great advice, but even with a fund that would allow you to support your family without debt for 2 years there would still be *significant* impact to your eventual retirement date if you exercised that option. Please clarify the difference between “never work again” and “keep yourself afloat.”

    Which leads to another obvious question. Are you making any distinction between funds allocated strictly for retirement and an emergency fund? In the event of an unexpected job loss, retirement funds could be used to carry you thru hard times, but the impact I describe above would be significant. An emergency fund separate from the core retirement fund would avoid this impact, but (in the case of my scenario) would be difficult to accumulate given the competing demands of retirement savings/college savings/mortgage payments/etc. Are you distinguishing an emergency fund from your core retirement portfolio, or is depletion of the emergency fund likely to delay retirement?

  19. Trent,

    You raise some good points. We are in a recession and companies are laying people in record numbers. Those pink slips are more a reality than ever before. There is no company loyalty. You can be a dedicated employee for twenty some years and the company will still lay you off to cut costs. I would however, also recommend having a equity line of credit for those who are homeowners.

  20. I love it! I have been following your site for about a year now and I must say that you keep getting better and better. I started looking how to live a debt free life about 2 years ago and with your help I now have no debt not even a house payment. I own my cars and everything in my life.

    Thank you! You have changed my life and my family’s forever.

    Keep up the good work.

  21. Excellent way to enforce the importance of having a emergency fund in place. You could also use statements like your “Car is going to breakdown” or “Your house will need major repairs”. Being prepared is the name of the game.

  22. It should be noted not to put too much cash in a high yield savings account or else the value of your money will be eaten up by inflation. I think 6 months savings is more than enough and the rest can be used to buy blue-chip shares & low cost indexed funds. Here in Australia banks are paying up to 7.50% on savings accounts but inflation is around ~3.3%. So the actual interest you get is ~4.2% which is much worse than putting money in the stock market for long-term.

  23. I love this post! (even if you did completely freak me out when i read the first line, before i realised there’s no way some random blogger will know if i am going to be fired or not, lol)

    Very cool form of motivation, and i was pleased to find that there’s wasn’t too much stomach clenching going on at the idea. And also that i’m doing most of these things already. Yay me!

  24. If they fired me tommorow. I would be a little uncomfortable but My wife and I have been living frugally for quite a while and her job would cover the expenses until I could get another job. Even a part time job would be enough.

  25. Trent, Another great article. I just wanted to let you know that I think your articles have improved tremendously since you have quit your day job!

  26. What a timely and great article! I recently just began to blog about our personal finances as a way to have a sense of accountability. My post yesterday somewhat touched on this as I have not updated my resume in five years. I’ll take you post as another reminder that I need take care of this and get out of my comfort zone. Thanks!

  27. Great article, my husband and I have seen 3 of our closest friends lose their jobs with long standing secure companies. I know of at least one who was upset but not freaking out, I know they had been cutting expenses, working on paying all the bills off. Their problem he is in his early 50′s and job prospects aren’t great, got a severence package, so no retirement, had invested in Company Stocks for retirement and they have dropping in value. But still they are taking it in stride so I am sure they have other resources to carry them through the tough times. The other 2 are freaking out, one just bought a home they really couldn’t afford, but with cutting back and expecting yearly raises they were sure they had it made. The other had all the newest toys, he who dies with the most toys wins school of thought. We will keep our eyes open for jobs and hope the last 2 don’t crash and burn. But even Government and Hospital jobs aren’t secure as we have heard on TV. Job security is a thing of the past.

  28. ugh, yes! Being that the economy sucks and I work in publishing, the possibility of losing my job in the next year is substantial. Good plan here, Trent :)

  29. I had this actually almost happen to me. My boss came in one day, the day before the end of the month and told us that he didn’t have money to pay us next month. For the first week of that month, I thought I was out of a job. They managed to pull some money together, so I was only out a week of work, but having a solid 6 month emergency fund kept a smile on my face the whole time. Everyone commented that I was _the_ most calm laid off person they’d ever seen.

  30. Having worked in the telecom sector for over thirty years (hello Worldcom poster above), I survived countless layoffs, and then didn’t survive THREE of my own. MCI, a private vendor company and Qwest. The same happened to my DH, BT Tymnet, MCI and Lucent. We managed to make ends meet because the layoffs weren’t concurrent, so one of us always had a job.

    Our expenses were reasonable, so we just held on. BUT, because of all this we have no 401K’s and no pension, so are looking at a very meager retirement, when and if we can really retire. We are both in the mid-fifties. My DH is now at Safeway for 1/4 what he used to make. I run a little antiques shop which is losing money.

    So something else to think about, besides being able to hang on til you find another job, is the future, and how a lay off or firing can affect it.

    All I can say is, Trent…where were you when I needed you, which would have been when I first started working, 40 years ago. Oh yea, not even born yet. :)

    I also agree with the poster that said you just keep getting better and better (at writing). Congrats on the full-time writing too, most writers have to have other jobs, it’s a mercurial profession.

  31. Oh and one other thing, a lot of our ‘retirement’ money was in stock, probably about 200K worth. Now ‘worth’less.

  32. A two month financial reserve is nowhere near enough.

    A more realistic amount especially in today’s environment is from four to six months financial reserve.

  33. I would say to those who are claiming that they will get severance…Enron. Maybe you will, maybe not. Three months of expenses saved and then a severance of seven months would be a nice set up indeed. ANd if it turned out to not be seven, you would still not be high and dry.

  34. Just to clarify, Sharon… I was not saying that assuming a severance package would be available is the way to plan for the future. It would be an inevitability in my situation, but as I said, my situation is unique. And I still am working on six months expenses in the bank, just in case.

  35. Nice post!

    I am one of those people who never learned to save, until now, and fortunately it’s not the result of some disaster like the one you mentioned in this posting.

    I’m learning because I’m reading the posts of people like you and seeing how wonderful life can be with the savings. In other words, it’s great to prepare for the worst, but what motivates me more is hearing about the life I can build when I get out of the paycheck-to-paycheck trap.

    Keeping my eye on the prize rather than the disaster is far more rewarding for me, and the result will be the same.

  36. This is great! I’m new to this site & love all of the articles I have read so far. Thanks for creating a blog with such great information. I look forward to visiting your site now & seeing what new ideas I can find. Bravo to you!

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