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Job Loss – Save Money or Get Out of Debt?

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Job loss – prepare by saving or debt reduction?

DFA reader Tiffany asked:

My husband just came home from work and told me he may be laid off at the end of the semester (he’s an adjunct professor at a small liberal arts college). He doesn’t seem panicked, but I know he is worried and I am VERY worried. He has never managed the household finances, we’ve agreed that’s my responsibility because I am so much more careful with our money than him. I run a small business from home and we have a daughter in day care full-time.  We have a very small mortgage (10K), credit cards ($300/mo), and a household expense budget of about $3000/mo. plus $1000/mo for day-care. We have NO emergency fund. I bring in about $2500/mo. We had been using his income to pay for full-time care for our daughter, but that will end if he’s not working.

So here’s my question: Since we have advance knowledge that we may end up in a financial train wreck, how should we best prepare? Do we work on building the emergency fund, pay off the credit cards, pay off the last of the mortgage? Thanks for your advice. I am trying to be pro-active and not wait for the “crash.”

How to best prepare for job loss

Great question Tiffany.  First thing is first: make sure your husband has his resume updated and is searching out and applying for every available and relevant positions.

Focus on trimming the fat.  You mention having a $3,000 household expense budget… I guarantee that can be lowered if you put your mind to it.  Cancel your cable, cut back phone plans, apply my grocery hacks, make your own diy household cleaners.  Be creative… you will be amazed how much cash flow you can free up for savings.

Consider pulling your daughter out of day care to increase your cash flow.  You mentioned working from home, and I know this would be tough, but if it is doable it will instantly free up $1,000 every month to help you prepare.

How much credit card debt do you have?  When is the semester over (so we know how many months you have to prepare?)  Without knowing the answers to those two questions, this is what I would do if I were in your situation.

1.  Save $1,000 in a high yield savings account.

The first thing you need to do is give yourself some semblance of monetary security.  You mentioned having no money saved in your emergency fund, and that needs to change right away.  Save some money… at least $1,000 for now.

2.  Forget about paying off the mortgage for now

Unless you have some unique circumstance surrounding your mortgage it is probably your lowest rate debt and is also secured by the home, so put mortgage repayment on the far back burner.

3.  Pay off your credit card debt

If your credit card debt is minimal, go ahead and pay it off.  By minimal I mean minimal compared to your monthly cash flow.  If you can pay this debt off within a month or two… go ahead and do it.  If you owe multiple thousands and it would take you longer to pay off, then just increase your monthly payments while saving simultaneously.  With job loss looming, I would encourage you to save 75% of your available cash flow and put the remaining 25% toward your credit card debt.

4.  Save money

Continue saving money up until the day your husbands employment ends.  Depending on how much time you have, if you can save $1,000 each month on day care and get that credit card debt out of the way, you should be able to build up quite a bit of cash.  No liquid cash means no security.

In closing

Update his resume and start the job hunt.  Reduce your household expenses wherever possible.  Seriously consider pulling your daughter out of day care (even if just for a few months – it will be hard but the pay off will help your situation immensely.)  Save at least $1,000 to get your emergency fund started.  Pay off your credit cards.  Save more money.

Remember to bring your situation before the Lord in prayer.  He cares for you more than you could ever imagine and is always waiting to help you… you just have to ask.

“Consider the lilies how they grow: they toil not, they spin not; and yet I say unto you, that Solomon in all his glory was not arrayed like one of these.  If then God so clothe the grass, which is to day in the field, and to morrow is cast into the oven; how much more will he clothe you, O ye of little faith?  And seek not ye what ye shall eat, or what ye shall drink, neither be ye of doubtful mind.  For all these things do the nations of the world seek after: and your Father knoweth that ye have need of these things.  But rather seek ye the kingdom of God; and all these things shall be added unto you.”  – Luke 12:27-31

Do you have any other advice for Tiffany?

Have something to add?  Please share your wisdom and experience and help point Tiffany in the right direction.  Thanks!

Have a question of your own?  Ask Matt Jabs for free!  🙂

*Disclaimer*
We accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Any advice taken from this site does not in any way establish a client/adviser relationship.  We always recommend that you consult with a licensed, qualified professional before making any financial or investment decisions.

Debt Reduction While Planning a Career Change – Beckey Answered

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Can I change careers with loads of debt?

DFA reader Beckey asked:

I need some advice. I am currently working the IT Support field but am finding myself bored and tired of the work. I’ve always wanted to become a Veterinarian so now I’m thinking of a career change. I’ve been looking around at some local schools and one of them has a 2 year Veterinary Technician degree that I think would be great for getting my feet wet to see if I in fact would love this field. I’m thinking of going part time, so I can still work either part time or full time to help with the income. The only problem is, between my boyfriend and I, we have almost $50,000 in debt (both had bad breakups with exes, he has school loans). We have been aggressive with paying off our debt and actually paid off 4 credit cards last year. We have our plan in place to become debt free, by October 2012, so we are both full speed ahead on paying off our debt. I’m not sure what to do here. I don’t really want to stay in my current job but can’t afford to not have that income.

Work hard

Hi Beckey… let me start by saying that I love your question.  It conjures visions of a happy optimist with shackled dreams – held back by poor financial choices from her past but eager to do things right this next time around – an all too familiar story.  After carefully pondering your situation I think you have a good idea of what needs to be done… so my advice should ring true as we work to help you devise a solid strategy.

The single best advice I can give is to work harder than ever.  You still need the income from you IT support job until the $50,000 debt is repaid so do not quit.  If you absolutely cannot stand your job just be sure to find another with similar compensation before leaving; perhaps grunt labor in the field of veterinary medicine?  🙂

If you can pay for classes without going into more debt then go ahead and follow your desire to start school while working.  More on this later.

Set, prioritize, and achieve your goals

Speaking of goals, what are yours?  Have you ever written them down?  Let’s try to help you set your first goal so you can effectively prioritize your actions.

It sounds like you biggest desires are:

  1. Debt reduction
  2. Career change

What do you despise more… the debt or the IT support job?  Will it feel better to pay off the debt or to get out of that job?  Before you answer remember that the debt is what’s keeping you in the job.  😉

It sounds like you have a solid understanding of debt slavery and are eagerly working a plan to get out.  You desire a career change but your debt has you shackled to a position you dislike only because delivers a way to repay the debt.  Sounds like slavery to me!  Therefore debt reduction should be your first order of business.

Note: a second job would accelerate debt reduction and the ability to follow your dreams – whatever they may be!

Here is what I would do:

Pay off debt before going into more debt

You do not mention how you plan to pay for Veterinary school.  Can you pay as you go or will you need to take out student loans?

Since debt is what got us into this mess in the first place it only makes sense to avoid further bondage until existing debt is gone.  If you must borrow for school then do so after October 2o12 or whenever your existing debt obligations have been met.

I am not saying you cannot borrow money to fund education – though I usually advise against it – I am saying you should not add to existing debt with more debt.

Assure yourself before making large life changes

Also… are you absolutely sure you will love the work of a VT?

To be completely honest with you, it does not sound like you are entirely sure veterinary medicine is the cure for your career discontentment.  Read your sentence again, “I’ve been looking around at some local schools and one of them has a 2 year Veterinary Technician degree that I think would be great for getting my feet wet to see if I in fact would love this field.”

Are you convinced that veterinary medicine will make you happy?  How long have you worked in IT Support?  Make sure that you are not trying to project dissatisfaction in other areas of your life onto your current career.  Also, make sure you are not suffering from The Grass is Always Greener Syndrome.  I bring this up because it is very important.  The last thing you need to do is spend thousands on education only to wind up right back where you started.

In closing

Focus on accelerating debt reduction while assuring yourself of the best career move.  Consider working a second job to speed debt reduction and freedom.  Once you can confidently vouch for your passions consider getting a grunt job in the field so you can get an everyday working feel for the industry.  After your debt is gone… go do whatever your little heart desires!  Well… within reason of course.  🙂

What do you think?

What are some tips I may have missed that Beckey should use to get out of debt and into life?

photo removed at the request of Mareen Fischinger
If you need personal finance advice… ask Matt Jabs.

*Disclaimer*
We accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Any advice taken from this site does not in any way establish a client/adviser relationship.  We always recommend that you consult with a licensed, qualified professional before making any financial or investment decisions.