Nobody takes pleasure in suddenly becoming unemployed. Just the ‘prospect’ alone can be very overwhelming and stressful. Often the worry or anxiety comes from feeling you have no control over the situation. This is partially true, you may not be able to control what your employer does but you can control to some extent how it will affect you and your family. The reality is, no one’s job is really secure but a layoff doesn’t have to be the end of the world. The key to survival is to be prepared, especially with regards to your finances.   Here are some things you can do in advance of being laid off:

1. Have emergency funds put aside to cover at least 3 to 6 months of your basic living expenses, such as your rent or mortgage, utilities, food and debt repayment.
2. If you are living paycheck to paycheck and do not have the extra funds at the moment to build up savings then set up a line of credit while you’re still employed. I am always cautious giving this advice, especially to people who have trouble staying out of debt. While you have an income, go to your bank and see if you qualify for more credit. If you lose your job and have no replacement income or not enough to cover your monthly costs, you will be in real trouble. This is when people get desperate and max out their 18% credit cards or potentially file bankruptcy. So get a line of credit now just in case you’ll need one later.
3. Get out of as much debt as possible. Transfer high debt loans/credit cards to lower interest rate vehicles and then start aggressively paying them down. By reducing or eliminating your debt, you reduce the amount of money that leaves your pocket each month. If you lose your job, you want to be able to survive on as little amount of money for as long as possible. 
4. Develop a ‘layoff’ budget before you lose your job. Figure out what sources of income you will have coming in such as EI and/or a severance package. Assess your basic living costs - mortgage/rent, utilities, loans, and food.  Ensure you have an emergency reserve and/or line of credit established that would cover any shortfall in income over a 6 month period.
5. Start living within your means now. Generally a good idea, regardless of whether or not a layoff is looming, but if a potential job loss is on the near horizon, avoid any unnecessary purchases for the time being, such as a new car, vacation, or renovating your home. Live as frugally as you can now and bank any extra monies.  We have heard it all before, leave the credit cards at home and pay cash for all purchases. Try to grocery shop only once a week. Eat out less. Re-evaluate your monthly bills and find ways to reduce them; call your phone provider and see if a better, less costly plan exists, let go of some of the cable channels. Get the whole family involved in the process. It will definitely teach your kids some smart money practices. 
6. Find ways to bring in some extra money now and then bank it. You could have a garage sale, sell things on ebay or assess your skills and see if there’s something you can do on the side for extra income or get a part time job now. Necessity is a time for creativity. Most importantly, bank all the extra monies you bring in.

Losing a job can often be a harsh wake-up call to how financially on the edge we have been living. In other words, living paycheck to paycheck.

If you are fortunate enough to be notified ahead of time of a layoff then I would highly suggest that you use that time to your advantage. Don’t just wait for the pink slip to be given. Even using one of the tips I have given will make a difference to your overall financial health. The reality is that a layoff could happen at any time and it’s best to be prepared. Hope for the best but prepare for the worst.

Rhonda Sherwood, CFP, FMA

ScotiaMcLeod

Wealth Advisor

Are you living the life today that you envisioned you would be living 5, 10 or even 20 years ago? Are you content with most, if not all, of the many components that make up your world: your family, friends, career, health, finances, spirituality and community? If yes congratulations, that is no small feat to accomplish and probably didn’t happen by chance. Most likely you achieved this through purposeful goal setting, hard work and perseverance.

 Although many of us probably have some idea of what we want our life to look like, few actually take the time to clearly define our goals, create an action plan and then follow through. Without setting goals, the direction of our life can change with every event or circumstance that comes our way. Wanting to be skinnier is very different than making a specific goal to lose 10 pounds in 3 months through diet and exercise. A sheer way to achieve success is to set goals and follow through.

Benefits of goal setting

•  Provide direction and purpose to your life
• Helps you to make decisions that will positively affect your future
• Allows you to focus your energies on what’s most important to you
• Will enhance the overall quality of your life, and will provide peace of mind           

Goal setting is also crucial to financial planning; as you will need the financial means to support the life you envision having. Without knowing what you want in life, you may be misdirecting or wasting away your resources. For this reason, the first step to undertake in the ‘savings room’ of your financial house is to determine what your short and long-term goals are. Your goals should be designed around your most important values.

 Take some time to think ahead. What do you want your life to look like in the coming years?  What is important to you? What would you like to have more of and less of? Without knowing the answer to these questions, goal setting will be a difficult challenge.  I often advise clients to follow the SMART system when devising their goals; goals should be Specific, Measurable, Attainable, Realistic and Timely.

• What are your short-term goals (under five years) and what are the financial resources you will need to achieve them (costs)?
  For example, New kitchen to be built by October 2009 at a maximum cost of $25,000
•  What are your longer-term goals (five plus years) and what are the financial resources you will need to achieve them (costs)?
  For example: Reduce work hours by half by age 55. Need extra $20,000 a year from investments to supplement part-time income.
               

People tend to have more goals than the money to support them, therefore, when doing financial planning often just two or three goals are taken into consideration. That is why it is very important when goal setting to prioritize, to be realistic and to set attainable goals.  You may want to retire when you are 50 but is this really within your financial capabilities? Maybe not, but perhaps with the proper planning, commitment and discipline retiring at 55 is within reach.

 However one thing is for sure, to achieve your goals you must start now. Only you can put your plan into action. Additionally, you must reevaluate your goals on a regular basis as they may change or evolve over time. So be prepared to make any necessary adjustments to your plan along the way.You have the power to create your own destiny, so take the time to invest in the future you want.

If a man knows not what harbor he seeks, any wind is the right wind.
-Seneca

Rhonda Sherwood, CFP, FMA
Wealth Advisor
http://www.rhondasherwood.com
http://www.itsHERmoney.com

In the last few issues of ‘itsHERmoney’ we discussed the importance of organizing the 5 rooms of one’s financial house; our personal debt room, our savings plan room, our retirement plan room, our estate plan room and our insurance needs room. Last month we tackled the topic of managing and understanding our ‘debt room’. In this issue we will deal with our ‘savings plans room’ or more specifically the importance of establishing an emergency savings fund.

Why are emergency savings so important?

As they say, “life happens when you’re busy making other plan” and life tends to cost money. Having enough money put aside for such unexpected events can be the difference between staying afloat or sinking financially. So one of the most important elements of your financial plan is to ensure an emergency fund is in place - and sooner rather than later.

Why an emergency fund?

An emergency fund is an easy to access pool of money to be used solely for the purpose of emergencies. Having an emergency fund in place gives you the “peace of mind” that you can handle most financial crises that come your way. This could be anything from an unexpected car repair bill to losing your job. Unfortunately, those who have not planned in advance for such unexpected events tend to borrow the money at the last minute and often at very high interest rates. In addition, those without emergency funds tend to collect more debt overtime.

So how much is enough?

This depends on many factors specific to each person’s situation such as, how employable you are, whether or not you carry substantial debt, if you have adequate insurance, if you are a dual income household and/or if you have children. The general rule of thumb is to have 3 to 6 months of your current living expenses set aside for emergency situations. However I recommend the following to my clients: 

• At the very minimum save a $1000 now in a separate high interest savings account. Set it up so it cannot be accessed by your ABM card. This will help protect against impulse buying. Remember an emergency isn’t, “I NEED those shoes’ but truly an unexpected bill or expense.
• When you have that $1000 saved and put aside you should aggressively start paying down those high rate loans and/or consolidate your loans into one lower rate manageable loan.
• Finally, when your debt is paid (excluding your mortgage) it is time to start saving 3 to 6 months worth of your current living expenses. If you find that you are spending what you earn then take 3 to 6 months of your current after tax income as the barometer of how much you need to put aside.
  I also recommend setting up a line of credit that would cover a few months of emergency expenses. I say this with caution to those who have trouble steering clear of debt. This is solely to be used for emergency means only.
   

 How to get started on your emergency savings plan 

1. Determine what you can ‘reasonably’ afford to put aside each month - $25, $50 or $100
2. Setup up an interest bearing savings account to save the initial $1,000. Again I advise that you open up an account that is not easy to access i.e. no chequing or ABM privileges. This $1,000 will help cushion any unexpected bills that may come your way.
3. Set up an automatic process to save – this can be an automatic monthly payment or an automatic transfer between accounts.
   When you are ready to start saving the larger emergency reserve- 3 to 6 months worth of your current living costs – open up another high earning savings account or a money market mutual fund (the latter is not as easy to access and takes a few days for the monies to settle once sold. It also tends to pay a bit more interest than a regular savings account). You want to ensure these funds are liquid and assessable when needed but are also growing with the cost of living (after tax and inflation).
4. Make sure that you keep your emergency funds separate from any accounts that you are using for other savings purposes, like reno’s, travel or a new car. 

How to find money to save

• Basically, spend less than you earn
• Save all your loose change
• Have a garage sale.
• Review your current expenses/bills to see where you can make some sensible changes - do you really need the movie channel?
• Cut back on indulgences (Bring lunch to work, have one less cappuccino a week, eat out less, and/or rent a movie versus going to the theater).
• Consolidate your debt into one low interest loan.
• Pay cash for all your purchases. People tend to curb their impulse buying when they actually have to fork over cash to make a purchase. Using cash also helps prevent out of control credit card debt and saves on the interest charges you incur when you borrow money.
• Cut down on bank machine withdrawals – those service charges do add up.
• Find creative ways to make extra money. Do you have a skill set that can be put to work?

Financial emergencies can come at any time and at any cost. All you can really do to help protect you and your family from such financial crisis’s is to ensure you are adequately insured and that you have enough savings put aside to help ride out whatever uncertainty comes your way. Start small if need be but start soon.

Rhonda Sherwood, CFP, FMA
Wealth Advisor
www.rhondasherwood.com
www.itsHERmoney.com