This is part two of our response to a reader question we received recently. To read the complete question and our answer, check out How to Rebuild Your Savings After a Catastrophic Event — PART 1. In this post, we’ll deal with rebuilding your savings in the aftermath of a career crisis.
Though the two events are certainly close in terms of the end result (depleted savings), a career crisis adds another dimension to the mix: the need to rebuild income in addition to savings.
The solution to this problem is even more complicated because of the number of variables connected with rebuilding a career. As we did in Part I, we’ll break down our answer into easy-to-digest steps.
Step 1: Do a Serious Assessment of Your Career Situation
It’s virtually impossible to deal with rebuilding your savings after a career crisis until you first deal with the career crisis itself. There are several factors that will affect your ability to deal with it, and by extension, these will also affect how quickly and thoroughly you’ll be able to rebuild your savings.
Determine if the crisis is temporary or permanent. Of course, no one has a crystal ball, but you have to do your best to assess how long the crisis will last. And it can vary from one person to another. For one person, a career crisis may last only two or three months. For another, the crisis could be career ending. You have to clearly determine which you are facing, because how you handle it from a financial standpoint will be very different. If there is reason to believe it is permanent, you will have to take radical steps.
Employed or self-employed. If you were employed, the career crisis may end as soon as you get another job. If you are self-employed, building a new business (with a decent cash flow) — or getting into a salaried job — won’t be quick or easy. In addition, a failed business venture could leave you deep in debt. This could include unpaid business loans, accounts payable, lease obligations and tax liabilities. That being the case, you may need to seriously consider filing for bankruptcy so you can give yourself a fresh start.
Family/dependent situation. More than anything, this will impact how quickly you need to act. If you’re single or married to a spouse with a solid career, you will have more time — and likely more options (relocation, complete career change, etc.). But if you have a family or are married to a non-working spouse, both time and options may be short.
Your industry and job skills. This is an area where you cannot afford to be overly optimistic. If your industry is in decline or your job skills are no longer relevant, you’ll need to make a wholesale change in your career, and do it as soon as possible.
You have to do some serious soul-searching in this area. I’ll share that I’ve known more than a few people — men mostly — who have experienced a career crisis that lasted for years. They bounce from one shaky situation to another, hoping for — but never actually finding — career salvation.
If this is even remotely your situation, then there will be no alternative to bold action.
Step 2: Replacing Your Income Is the Priority
The first thing you have to do to improve your financial situation is to stop the bleeding. That means you will have to develop income sources that will keep you out of debt.
There are several ways you can do this:
If you have no unemployment benefits, move fast. The biggest mistake people going through a career crisis make is thinking it will all be over quickly. They send out resumes, maybe hundreds of them, waiting for that perfect job to come through. If you have no unemployment benefits — no cash flow of any kind — the best strategy is to find an income anywhere you can get it, even if the situation is far less than perfect. In addition, making at least some money is a good way to at least partially offset the feelings of worthlessness that often accompany a career crisis.
Look into informal work arrangements. Even companies and businesses that don’t have any available full-time jobs still have work to be done. Offer to fill any kind of role you can in any business where you have relevant skills. Start with your previous employers, and even check out Craigslist.
Offer your services for hire. If you can do lawn work, computer work, clean houses, take care of pets, do photography, or any one of hundreds of other tasks, you should offer your services to friends, neighbors, small businesses or even the general public. This could be the start of an ongoing side business, so give it all you’ve got.
Take a part-time job. Maybe this won’t replace your pre-crisis income, but it will get some money flowing in. But just as important, it will have you out circulating, and that may give you an opportunity to find a better-paying full-time situation elsewhere. You may also want to use a part-time job in combination with informal work arrangements and/or offering your services for hire. A combination of several income sources can get you through the moment and might even lead to more opportunity later.
Encourage nonworking members of the household to get jobs. If you’re the main breadwinner in your home, you should encourage your spouse and your teenage children to find part-time work. Any income from any source will help the overall family income situation, if only by enabling the kids to handle more of their own financial responsibilities.
If your career crisis is looking to be longer than temporary, the sooner in the process you implement these steps, the better the whole situation will go.
More important, the income you earn from these various efforts will help to give you the time and staying power you need to make a wholesale career change.
Step 3: Dealing With the Health Insurance Issue
Closely tied to a career crisis — but often left unspoken — is the sudden disappearance of health insurance. While the typical course of action is to simply go without health insurance coverage in order to save money, this is also courting disaster. A single major health event can lead you to bankruptcy court in short order and undermine everything you‘re trying to accomplish.
You do have a couple of options other than taking the prohibitively expensive COBRA coverage from a former employer. One is Medicaid. Since a career crisis brings with it a collapse in income, you may be eligible to get Medicaid coverage in your state. At a minimum, if you have children, try to get them covered.
The second option is to find a part-time job with health insurance. My wife and I are currently covered by a plan she has from a 20-hour-a-week job, so please don’t dismiss this option out of hand.
If you are looking to create income sources, make one of them a part-time job that offers health insurance. When it comes to health insurance, any coverage is better than none at all, and this is especially true when you’re going through a career crisis. Simply having health insurance will give your recovery efforts more staying power.
Step 4: Get Used to Living on a Shoestring
Like creating multiple income sources, living on a shoestring is a strategy best implemented immediately and retained for the foreseeable future. This means eliminating any and all expenses that are not absolutely necessary.
Even expenses that are totally necessary should be examined to determine if they can be reduced. Some examples include taking in a roommate or border to reduce housing expense, finding a backyard mechanic who will fix your car on the cheap, and bartering for goods and services wherever you can (“I’ll sit your pet while you’re on vacation if you’ll fix my computer”).
And as discussed in Part I, you should seriously consider selling any major possessions, particularly those that have debt attached to them. This can cut your living expenses, eliminate a debt and maybe even provide you with some much-needed cash from the sale.
Embrace living on a shoestring. Not only will it help you to weather your career crisis, but it will also play a major role in your efforts to rebuild your savings once the crisis is over.
Step 5: Start Saving Money ASAP
Saving even a little bit of money is better than not saving any at all. At a minimum, you will need to keep a healthy balance in your emergency fund. And if it has already been completely cleaned out, you will need to rebuild it as soon as possible. Emergencies seem to be only more likely to happen during a career crisis, so this needs to be a priority.
Once you reach the point where you have a living wage equivalent, you can then begin saving money for retirement and for other major purposes. Once you do, it will be time to make up for lost time to the degree you’re able to do it.
For example, where you might have been saving 10% of your income for retirement in your pre-crisis life, you may need to up that to 20% or even 30% once you have replaced your lost income. That will be easier to do if you continue living on a shoestring even after your career recovery.
That’s also an unexpected benefit of a career crisis. Once you realize you can live on a lot less money than you always did, the doors open to saving and investing a lot more money than you ever thought you could.
Take advantage of that for all it’s worth, and you’ll recover the lost savings much more quickly than you ever imagined.
Do you have any other advice for someone who’s facing a career crisis?