Stop the Machine!!!
While managing your career you should be attentive to your financials.
Before taking a risky move, for example accepting a stretch job, opening your own business, or even quit one company to embark in another one, you must prepare your personal finance for the possible scenarios ahead.
I’m talking about risk management.
Although you can enhance your employability - which means how attractive you are to the market - you still can get into trouble. Lets read "trouble" by losing income or having it reduced drastically.
It would be great to "stop the machine". Unfortunately, that’s virtually impossible. Your recurring bills will continue to come: mortgage, car expenses, utilities, schooling, supermarket, fees and so on.
The trick here is not how you stop the machine while in crisis mode, but how you structure your life while good fortune is present, considering the risks and knowing that time has its ups and downs.
It’s a common trend that people raise their fixed cost as much as their earnings goes up. There is a change in our life cycle, I know. We will consume more as a family than as a single person.
However we can control on how much we want to inflate it. That comes down to the daily expenses and the major disbursements as well.
Are you able to put aside part of your net income into savings? I’m not talking about pension plans, these are untouchable. I’m saying conservative investments with great liquidity. It can build a good cushion to absorb the impact of a crisis. If you are not able to do it, review your monthly expenses. There are many books about it.
1. In case of crisis, which lines of your cost structure you can remove immediately? Maybe some of these examples can be reduced: TV channel subscription, gym membership, piano classes, nanny, frequent outings or parties, non-essential shopping, etc.
2. Which lines you can adjust down? Bank premium service fee to standard service fee, full time maid into part time, premium brands at supermarket to more generic ones, etc.
3. Some other costs you must carry on without much room to adjust: mortgage or rental, insurances, house maintenance/compound fee, school tuition, etc.
For major disbursements, i.e. a house, the impact can be huge.
What’s the right size for a home? In which location? Normally we don’t change home as frequent as a car, for instance. Have in mind that a mortgage can go for 30 years, your children will probably will be flying by themselves in 20 years. Over your career you might pursuit a nice big house and might get it by the time children are becoming teenagers. Sounds great, but in few years, you might end up in an empty large house just you and your spouse. Later on, when retirement arrives, it’s very common to see among retirees, their income reducing and health expenses going up. How to cope with the new structure cost? Maybe choosing a slightly smaller house would be enough for the family and will provide a better cost structure. You can argue that you can sell the big house into a small one. Very true. Some people stick with their homes, and the history they built there and might not be so easy to move. Others notice that selling the house is not going to offer enough money to move to a nice smaller one. There are many scenarios. You are the best one to create a strategy for your own context.
We must acknowledge that human beings always want more and more. We are surrounded by advertisement to consume everything, fast and we are convinced that we really need to change our cars and our mobile devices frequently, for example. Consequently, it’s so easy to spend all our earnings quickly.
It’s under your control to review your financials and get a plan to which lines you can shut down immediately, adjust down and the ones that you will need to carry on.
No matter how much you cry in a crisis, you can not shut down the machine. Get ready beforehand.
Act now. Go for it!