On Job Security And Preparing For The Worst

The funny thing about job security is that everyone thinks they have it until they don’t.  Most of us can’t imagine a scenario where we’ll get laid off until something unexpected sneaks up on us.

In 1993-94, Alberta Premier Ralph Klein set out to eliminate a provincial debt of $23 billion.  I was only 14 and too young to understand the impact of Klein’s budget cuts.

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After a decade of pain, closing schools and hospitals and laying off thousands of public sector workers, the debt was finally paid off in 2004.

Alberta Budget 2013

Fast forward 10 years later and Alberta is back in debt and faced with similar financial challenges.

The latest provincial budget was released last week and, as a University employee, I was particularly interested in the funding announcement for post-secondary schools.

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Premier Redford had made it clear that post-secondary institutions could count on a 2% increase in their operating grants for the next three years.  That was before the province discovered they’d be short $6 billion in revenue this year.

Now all bets were off.  Universities scrambled to make plans for a worst-case budget scenario, a 2% decrease in funding.

It turned out to be a nightmare scenario.  Funding was cut by $147 million – or 7.3%.  This is going to be ugly.

Expect the unexpected

Job security is no guarantee these days.  That’s why it’s important to stress test your finances against the worst case scenarios, and then test them even further against a nightmare scenario.  You never know what might happen.

While you may never be completely prepared for a layoff or other financial disaster, there are certain things you can do to mitigate the risk.

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I’ve built in a few financial cushions to help ease the fall if things go bad.

Cash reserve – Call it an emergency fund or an opportunity fund, it doesn’t matter.  What matters is you have access to a cash reserve that can help you through a period of unemployment.  I’ve got $15,000 in a high interest savings account with ING Direct.

Extra mortgage payments – I’m not a fan of taking a mortgage payment vacation, but I’m putting an extra $1,100 per month on top of my regular mortgage payment.  If we were faced with a financial challenge I would suspend the extra mortgage payments and add that back to my monthly cash flow.

Saving and Investing – It would be great to be able to live off my investments but unfortunately my portfolio is only churning out a few thousand in dividends per year.  I’d put an end to my RRSP and TFSA contributions if I were laid off.  I’d also stop adding to my cash reserve.  That would free up $2,500 per month.

Side Income – Blogging started out as a fun hobby but it’s also been a good source of secondary income.  If I were to get laid off my full time job I would look to expand my online business by increasing the content on Boomer & Echo and picking up another freelance writing gig.

Final Thoughts on Job Security

It’s not pleasant to think about layoffs and worst case financial scenarios.

Most of us like to believe we’re good at our jobs and that we provide enough value to our employers that they’d never consider letting us go.

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Sadly, that’s not always the case, especially in the face of sweeping budgetary cuts like those just announced by the Alberta government.

I’ve got a good financial cushion in place so that, if I do lose my job, I can take the time to find the right opportunity and not be forced to accept the first job that comes along.

How confident are you in your job security?

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  1. Jane Savers@ The Money Puzzle on March 11, 2013 at 6:41 am

    My health care company is outsourcing so cuts to hours are on everyone’s minds. Luckily for me there has been an outbreak of pregnancies so I am safe for the next year – but after that….

    How long could you live on the $15,000 emergency fund?
    I would only be ok for 1 month and then I would have to start selling shares in my TFSA.

    • Echo on March 11, 2013 at 6:59 am

      @Jane – Ha! My career began when I was hired as a one-year maternity leave replacement.

      Sorry to hear about your company outsourcing.

      The $15,000 cash would cover about 3 months of expenses, maybe a little more. But only if I had no other income coming in.

  2. Lacy @EarnVerse on March 11, 2013 at 8:14 am

    Recently I was reading about portfolio careers, i.e. a career that provides you income from multiple streams. For you it would be blogging, or the opportunity to freelance. I’m still under 30 but have already experienced multiple rounds of layoffs. The more volatility I see in the job market, this sounds like a better and better idea.

    Also I recently read the a lot of financial planners are now second guessing the traditional 3-6 months of living expenses in the emergency fund. They are now suggesting looking at 9-12 months if you can swing it. I think this is something to visit and really think about to see if that might make sense. I am currently a grad student but am looking to get into a career that is very tied to the market. I think I am going to have to look for additional ways to diversify so that all of my eggs aren’t in the same basket so to speak.

    • Echo on March 11, 2013 at 1:23 pm

      @Lacy – I like the portfolio career idea. I think it’s wise for today’s youth to consider a side income or becoming more entrepreneurial to succeed.

      Saving up 9-12 months living expenses is overkill. The key is that you’re earning more than you’re spending each month. From there you’ll want to focus on building assets.

  3. Bernie on March 11, 2013 at 8:15 am

    Alberta’s deficit is due primarily to the difference in the oil price between WTI and WCS. As this is a temporary setback can AB not dip into their Heritage Trust Fund to balance the budget?

    • Echo on March 11, 2013 at 1:35 pm

      @Bernie – I’m not sure how it all works. There’s a Sustainability Fund that’ll get depleted from $2.7B to $691 million by this time next year. This fund held $17B just five years ago.

      Then there’s the Heritage Fund, which sits at about $15B. I don’t think they’ll dip into this fund, in fact, they’re adding to it by a couple hundred million.

  4. Adina J on March 11, 2013 at 8:29 am

    Oh man, the whole emergency fund thing again. I thought the general consensus was now that EFs are not the greatest idea, if they consist of piles of cash sitting around earning minimal or no interest. I’m with Robb on this … I still have a chunk of change in a high-interest savings account, but I’ve been whittling down the amount over the last few years, and moving the money into better-earning vehicles. If push came to shove, everything except the RRSPs could be liquidated fairly quickly. Keeping 9-12 months’ worth of expenses in a savings account seems counterproductive. Do I have that much money saved outside of my RRSP? Sure. I consider it part of my long-term savings, but it could easily become an “emergency fund” if needed.

    So I guess I don’t really see the point of having a designated “EF” consisting of x amount of money. Isn’t the point to save as much as possible?

    • Echo on March 11, 2013 at 1:39 pm

      @Adina J – I’m not sure there will ever be a general consensus on emergency funds.

      My biggest challenge is that most of my additional cash flow goes towards my RRSP or my mortgage. Those aren’t very liquid vehicles.

      That’s why I’ll save about $1,250 a month in a high interest savings account. But once that amount grows beyond $10k or $15k then I’ll look to deploy it elsewhere.

  5. Money Beagle on March 11, 2013 at 9:16 am

    I’m secure right now but I’ve learned that can change on a dime. I learned this the hard way in 2005. In 2003-04 I was a high flight guy in our company. I made some changes to an account that wasn’t meeting service level agreements, and we went from the worst performing account to the best, and my work was so well thought of that I was assigned to temporary gigs at two other locations, both of which saw improvements after my time there. Even got a nice raise in Jan 2005, then a new boss came on, he had his own people he wanted to bring in, so he drummed up some reasons, and I was gone. Just like that.

    • Echo on March 11, 2013 at 1:41 pm

      @Money Beagle – Wow, talk about getting blindsided.

      You’re right, things can be going just fine and then change on a dime on some event that’s beyond our control.

  6. Anne @ Unique Gifter on March 12, 2013 at 8:33 am

    A sweet upside of our mortgage overpayments is the ability to drop our payment down, well past the original payment. Pretty soon we won’t have any mortgage, which will do wonders for our SHTF scenario 🙂

    • Echo on March 12, 2013 at 1:29 pm

      @Anne – Yes, it’s helpful to have flexible mortgage payments (although I’m sure your bank will encourage you to take a payment vacation so they can make some more interest).

      SHTF scenario – I like it!

  7. Joe on March 12, 2013 at 11:26 am

    Economic growth in Canada, if low oil prices are sustained and the housing market implodes, could result in an even worse story. Ontario’s manufacturing base has been hollowed out; our country has regressed to hewers of wood and drawers of water (or, more accurately, hewers of minerals and drawers of oil). I think there are strong arguments that Canada’s net exports are essentially being colonized by China.

    I really hope you don’t get laid off (obviously) but it’s great you’re planning for this adverse scenario. Employment is always a key risk yet all I hear from friends, family, and most bloggers is that their job is incredibly secure and could never get chopped.

    • Echo on March 12, 2013 at 1:31 pm

      @Joe – We’re all above average drivers and above average investors. Of course we all have above average job security too 🙂

  8. Bet Crooks on March 12, 2013 at 1:42 pm

    Near the other end of the employment spectrum comes the “early retirement” problem. When the workplace gets stressed, it often forces older workers into early retirement.

    In the 1980s when it happened to some relatives of mine, pensions were “defined benefit” and the companies often bridged pensions until CPP kicked in. So while these forced retirees were not as well off as they would have been if they could have had the 8-10 more high-income-earning years they had planned on, they were able to retire without huge problems.

    Now pensions are mostly “defined contribution” and they often have been hit hard by the 2000 and 2008/9 market meltdowns. Being forced out early can be devastating. It’s not really early retirement at all, because there isn’t enough money to retire on. It’s just unemployment at an age that makes the worker really unattractive to the few companies that are hiring. This happened to several people we know who worked in auto-related industries. (These are not the kind of people who can set up a consulting business etc. for a few years.)

    So while having six months to a year’s worth of savings is critical if you are a young worker, it’s even worse for an older worker. What if it takes you 3 years to get a new job and you’re 55? How do you ever recover the lost retirement savings from those 3 years?

    It’s a worrying time. And, yes, we have emergency savings, and I hope others are saving as much as they can, just in case.

  9. LifeInsuranceCanada.com on March 15, 2013 at 5:21 am

    Being self-employed seems risky, but after you’ve been self-employed for about two years, not being self-employed looks like a riskier proposition.

    Like Robb, my wife worked at a university for a dozen years and was outstanding at her job – convinced it was 100% safe. Then the new boss came in and decided that for prestige purposes everyone in the department needed a masters degree. That wasn’t the excuse they used, but it was pretty clear it was the reason. Legal advice said they were breaking the law in what they did, but we didn’t bother pursuing. That’s why I now have the best admin person available :).

    Moral of the story, don’t convince yourself that any job is ‘safe’. Make sure you have an emergency fund big enough to tide you over until you find a new job in unfavourable conditions.

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