Having been the indirect victim of layoffs a few times in the past few years, one thing that I can’t wrap my mind around is: how can a country with very few laws ensuring job security or protection to employees have a culture of living in debt? In my home country, it works differently: not only we have many laws protecting us when it comes to layoffs (the companies have to pay us 40% of the total amount of our contract as a fine, for example, and we are given access to an account where the company deposited 8% of our monthly salary for the entirety of our employment), our financial system won’t allow us to go into deep debt. For example, we can’t buy a property unless we put almost half of the total purchase as down payment and when we do, interests may make you pay at the end of the loan twice the amount borrowed (or more!). It is outrageous, I know. But, if on one hand, it limits considerably each person’s ability to build wealth, it offers a protection to how far one can bury oneself in debt. If you are born in Brazil you will most likely live your entire life within the same social class you were born, or maybe move to the next one up, but that is about it. Here, the opportunities are limitless, which is great, but the consequences to bad choices can also be limitless, and that can be scary. How do we deal with it?
Basically, we live in a country where dependence on employment can make things like relocating common currency. That makes creating bonds and attachments more difficult (would that be why the rest of the world sees Americans as cold and detached?) and requires from teenagers (who are in an age where friends and belonging to a group is a big deal) a level of emotional and psychological maturity that can be too much to ask at this age. But you have a family and you do what you have to do to survive, maintain your lifestyle and keep growing. So, if moving is what has to be done, everybody moves, everybody adjusts, sometimes children are left with other relatives, and life goes on. But it all comes at a cost, of course, some of which were already mentioned above: difficulty bonding and creating lasting relationships, lack of sense of home (since your physical house is yours now and may not be next month if you have to relocate). Challenges abound. So, I wonder, is there any way to minimize the financial impact of being laid off in a culture that lives in debt?
Here are a few tips I came up with based on my very own experience:
Don’t adjust your expenses or lifestyle to your current job or salary. You don’t know how long that will last. We hope it will last for long, but what if it doesn’t? Instead, you should be able to pay for your fixed expenses (mortgage or a car loan monthly payment) with savings for 6 months, in case of unemployment. That doesn’t mean you can’t enjoy luxuries if your salary allows for that. But you shouldn’t be under a long-term contract for any of those luxuries: they should be expenses you can cut back on quickly in case of need. So, if you are living within your current means but if you wouldn’t be able to continue to afford them for 6 months without a job or salary, you should downsize immediately. This takes us to the next point.
Put aside every month an amount of money that, should anything unexpected happen, you have at least 6 months of budget to survive unemployment. Remember the story I told about Brazil, where companies have to put aside an extra 8% of your monthly salary at an account that you will have access to in case of a layoff? Well, on top of that, we have a compulsory discount on our paychecks of 8% of our gross monthly salary, which is deposited in the same account. Even though Americans are not big fans of anything that is compulsory, eventually you forget that money and you manage to live within your net income with no strains. Since here we don’t have that law, what about we start planning our monthly expenses based on your net income less, say, 15% of your gross monthly income? It may feel difficult in the beginning, but I assure you that if you do that for a few months, it will become second nature. And it will prove super helpful in case of an unexpected change in your employment.
Treat your severance package as salary. Even though you will get the money all at once, you should never ever ever make that available to you in your checking account as a lump sum amount. Instead, put it on a savings account and schedule transfers to your checking account of the amount you would receive every other week as salary. That will work as if you were being paid to look for a job and will delay your need to reach out to your savings to keep the boat afloat.
Find out which assistance programs you have available to you. According to your salary and severance package, the availability of these programs may be more or less limited to you. But you should definitely check them up. If you are able to secure any sort of assistance for any period of time, that will also delay you using your savings account and will allow for more time available to you (without financial stress) to look for a job.
Finally, make sure you keep your credit score good. In a country where you are no one without good credit, we can’t just ignore the importance of having good credit, regardless of whether you should use it or not. Treat as the last resource: if everything else fails, your savings run dry and you can’t find another job, if you at least have good credit, that will keep you going until you come up with an emergency plan B.
If you follow these tips, you will be able to ensure your financial health without having to relocate your family every time you get dismissed from a job. Because, even though relocating can be fun, when we have children, it comes with a cost that may not be assessed until later in their lives. From a psychological perspective, it is as important to be exposed to new people and new cultures as it is to be able to establish roots. The trick resides in creating the balance between both. Hopefully, you won’t have to figure that one out anytime soon.