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What is Your Financial Fallback Plan?

by Ryan Guina

Do you have a Plan B in place if you were to lose your job? Last year a friend of mine lost his job of 10 years when the owner sold the company and the buyer stripped it down and laid off 95% of the employees. It took him 7 months to find a job, and the only job he could find was outside of  his normal career field. It was very eye opening experience, and I know he is not alone.

The current economy is bad and this is becoming more common as time goes on. Unemployment is getting worse and if it doesn’t touch you directly, chances are it will affect someone you know.

His experience got me thinking more about our financial fallback plan. For better or worse, here it is:

Our Financial Fallback Plan

Big changes coming for our financial situation. Before I talk about our fallback plan, I need to explain where we are financially. Right now my wife and I are going through a huge life change – we are expecting our first child. This is an exciting time for us, and even though the economy is bad, we have decided it will be best if my wife quits her job to be a stay at home mom.

We have been planning for this for a long time now. First, we made some changes in our employment situation that resulted in less income, but a better quality of life. We prepared for almost a year to reach that point, then it was another year before we were expecting our first child.

During that time, almost two years, I started a blog which earns some side income, we eliminated all debt outside of our mortgage and we have been living on only one salary. The rest of the money we earned went into our retirement accounts and into cash savings. We have over a year’s worth of savings set aside, so I’m not worried about the short term.

What’s the long term financial outlook? Long term, things could be different. After we have our first child, I will be the sole earner for our family. I have a job as a government contractor that is fairly secure and that pays fairly well. In addition, I have a few websites and other online interests with which I earn a fair amount of money (but not full-time income for a family of 3). As long as things continue like this, then I am confident we will be fine. However, in our economy, we all know that things can change in the blink of an eye.

How I would deal with unemployment

Worst case scenario – unexpected job loss. The worst case scenario would be that I would unexpectedly lose my job. Once my wife resigns from her job in a couple months, we will rely on my job as our main source of income and for our benefits. Health insurance is expensive, and COBRA coverage would likely be our best option – and would probably cost around $1,000 per month. Health insurance coverage is a big reason why losing your job is such a bad situation – your fixed costs spike while your income drops.

File for unemployment. The first thing you should do when you lose your job is file for unemployment. Except I can’t file for unemployment because I earn money from my small business. That isn’t an option for me, so that means I will need to start looking for a job immediately and tap into my professional network.

Our fallback plan. Our fallback plan calls for me look for a full-time job and hopefully doing job interviews while continuing to work on my small business and looking for ways to increase revenues. As I mentioned earlier, we have a large emergency fund. But if our savings dwindled too low my wife could always go back to work and I could stay at home and raise our child while continuing to earn money from my small business. My wife works in the nursing field, and nurses are almost always in demand, so we feel fairly confident that we would be able to get by.

We are financially secure – for now

My wife and I feel confident about our current financial situation, but we are well aware that things could change quickly. We live in an area that has been hard hit by the recent economic slowdown and it probably won’t get better anytime soon for a lot of people. This financial crisis has made us both aware of how important our emergency fund is and how important it is to budget and have a financial plan.

What is your financial fallback plan?


Published or updated November 4, 2009.
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{ 21 comments… read them below or add one }

1 Karen

I hope this is never something you have to think about, but for people who find themselves suddenly without a job and no insurance, I urge you to look into private health care (Blue Cross, Humana, etc.) If you’re in good health, you can often find comparable coverage for MUCH cheaper.

For instance, my employer pays my premium, but if I added my husband to the group plan I’d have to pay his premium. It would cost $300 a month to add him to my employer insurance. Instead, we shopped around and found him individual coverage with Blue Cross for $150 a month. The plan is actually better than my group plan in some ways, but half the price.

I only bring this up because for a long time I was also under the impression that employer provided group plans were cheaper. The truth is, it’s only cheaper if your employer is covering all or a big chunk of the premium.

Of course, if you have health problems it can be hard to get coverage with an individual plan, and COBRA might be your only option. But if you’re young and in good health, it’s almost always cheaper to shop around for individual coverage.

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2 Ryan

Karen, thanks for the information about shopping around for private health insurance. I haven’t had the need to look into private health insurance before, but I will definitely look into that should the need arise. I know health insurance is expensive, especially without having an employer subsidize it. Hopefully I won’t need to cross that bridge.

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3 Ryan

Wow – exceptional job reducing your debt, Ron! I agree with restocking the e-fund. In this economy, I think that is a very prudent thing to do.

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4 Kristia@familybalancesheet

Back in 2006, my husband and I realized the importance of our fallback plan or emergency savings when we hit a rough patch with his business. We had just become parents and I was staying at home. Prior to the baby I worked at his office, but when baby came we hired an employee. Not only did his business turn soft, but he had a health scare that only made things worse. We were not bringing in enough income to cover our biz expenses and our home expenses. Thankfully we were able to cover these expenses with our emergency savings and cutting back on our spending. While we didn’t need to rely on credit cards to get by, we pretty much depleted our savings by the time his biz turned around. We are still working to get the savings back to where it was. Thankfully his biz did turn around and 2008 was his best year so far, but you never know with this economy how things are going to go. Our plan has always been to have a solid emergency fund and if need be I would go back to work to help bring in additional income.

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5 Ron@TheWisdomJournal

I feel pretty confident in my job for now. But that’s not to say I couldn’t lose it. My plan B is not as strong I would like it to be, but I do have an option to go back to my last job. It would be a major step back (financially and professionally), but better than nothing. Our non-mortgage debt has decreased in the last two years from almost $75,000 to just over $10,000 so we’ve made significant progress there and eliminated some high interest payments. But all that has come at the expense of our savings. right now, the emergency fund only has about one month’s expenses and we’re feverishly working to re-fund it.

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6 frugalcpa

My wife plans to stay home when we have kids, too, and my job will never be entirely secure working at one of the Big 4 accounting firms. That said, as with nursing, it’s usually fairly easy to get a job in accounting. Similar to yours, our fallback plan would be for me to find another job through network, and if that didn’t work, my wife could most likely find one and I could stay with our children and consult from home.

Absolutely worst case scenario is moving in with the parents. I love them, but let’s all pray it doesn’t get to that point.

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7 Justin

Good post. I enjoy reading this along with my other personal finance blogs daily, and decided to post our plan.

My household is a single wage earner as well (that would be me) and my wife stays home with our daughter who is almost 2. We are having a bit of a life change as well since we are due to have twins by the end of this month (for those wondering a boy and a girl).

The company I work for is stable, but layoffs have started in support areas. We are also in the midst of paying off debt and just starting down the debt free road.

Our plan is as follows (currently): We are saving our tax refund from both Federal and State along with our current savings to make sure we have a cushion. My employer offers a severance package that is about 3 good months worth of income and health insurance.

Another area is that I’m planning on trying to secure a second part time job once the babies arrive so that in case the layoff does come I’ve got some form of extra income to help brace.

The third leg to stand on is that I’ve polished up my resume in case of the need of “immediate deployment” and I’ve got bots on Monster and other job sites dropping me lists weekly on job opportunities so that I keep on top of the current local market.

The best part of our plan is that while both my wife and I don’t want to have me loose my job, we are both prepared for the event if it were to occur. I told her that on the plus side I’d get to have some extra time to spend with the newbies while looking for jobs!

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8 Miranda

Great post! Our fallback plan if I lost a major client is for me to look for more work, while living off of our savings. In a worst case scenario, my husband would take time off of school and get a job here in town while I worked on bring in a little more coin from the online world. Turns out we have the lowest unemployment in the country!

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9 Jules @ Money Feuds

Great job on mapping out a multifaceted backup plan! It is very inspirational.

My family is in transition right now. My husband is finishing up training this year (under 6 months left), and we are looking for jobs for him. We have our primary residence in one state (where we still have our mortgage for our home), and are renting in the state he is training in. We don’t know where we will be in 5 months so it’s a little tricky! He is looking for jobs, has some options, but the economy isn’t so great, so the options aren’t as good as we saw a year or two ago.

My current work is fulfilling, but I may need to add some consultant work to boost up our income so we can ride out any bumpy times in the future, especially since we aren’t certain of our employment when/if we move.

We are working to continue building up our emergency fund and we contribute to our retirement funds each year. But we still feel a sense of worry since we would like to start a family soon (but with transitions we need to consider stability, insurance, etc.). And of course, like everyone else, our home value has decreased, so we need to consider whether to refinance, etc. But since we are away for now, we are continuing to go with the same payments (just to simplify life a little right now).

Money is tight for us now, but I know much of the world is feeling similar pain, so I shouldn’t complain.

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10 Craig

Since I am younger I wouldn’t have the severity of a job loss the way you do, because I am only financially responsible for myself. Although the new blog got started, it’s no where near potential earnings. I don’t have any secondary income but for me a job loss would mean going for interviews and possibly moving back home for a bit to save money.

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11 Steve

My fall back plan is to start tutoring more frequently while I search for a new job. I would spend large quantities of time searching for a job, new students to tutor and on my blog.

To job search and increase the number of students I tutor I would definitely rely on my professional network. Through my current job I have a few coworkers who have strong ties to companies in the area who would vouch for my abilities. A professional network is instrumental for getting back on your feet quickly.

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12 Mrs. Micah

I hope I never have to use it, but our fallback plan involves our decent savings, my scrambling to get some extra clients if I’m the one laid off (vs. what I normally take on while I work 40 hours/week), COBRA but looking into self-pay health insurance (much cheaper if you have a high deductible). It also involves my looking into temp agencies (again, if I’m the one laid off).

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13 Kyle

Your plan sounds pretty, well sound. I worry about my own situation even though my job is pretty secure. We have at least three months in E-Funds, and both my wife and I work so we would hopefully only lose one of our two incomes.

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14 Manshu

My fallback plan is to start freelancing.

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15 Ryan

Kristia: Thanks for sharing. Glad to hear things worked out with the business and more importantly your husband’s health! your fallback plan sounds like a good one!

Jules: Thanks for sharing your plan. It sounds like you and your husband have a lot of unknowns, but there is nothing wrong with that. My wife and I were in a very similar situation a few years ago. The best thing you can do is have a little buffer money and remain flexible. You never know what will happen in the next few years, so being flexible will make your life much easier and more enjoyable!

Craig: being young and not having a lot of expenses can be very liberating because there isn’t much tying you down. Even though a job loss will hurt, you won’t have the plethora of bills dragging you down. It’s also very good to see you working on alternative income streams. I waited until I was 27 to start working on that and I wish I would have started sooner. I might even be doing that for a living now if I had! ;)

Steve: I agree about the professional network. That can be a lifesaver! It’s also good to look at alternative income streams and try earning money outside your day job. Nice plan. :)

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16 Kristy @ Master Your Card

I’m pretty secure in my job, as well…for the time being. I work at a credit union, so you never know, but we’ve made money and expanded our business despite the economic conditions.

That said, I do have a back-up plan. I do freelance writing outside of banking, so I think if I lost my job, I would pursue this option full-time and call in my list of clients. As a freelance writer, I can also become a union member and get reasonable healthcare for less then going it alone. There’s a union fee, of course, but I think it would still be better than trying to pay for an individual policy.

My emergency fund has about six months worth of expenses currently saved up, plus a little extra for car repairs and the like. My personal savings has about $5k. I’d shift the savings to the emergency fund, just in case, and have pretty close to a year’s worth of expenses saved up. That gives me a little breathing room while I work on building my business.

So that’s the plan. I have a plan C, too, but I keep that on the back burner. It’s there if I need it, but I’d like to exhaust other options first.

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17 outlaw

Working for uncle sam has me in about as secure of a job situation that is possible. Right now my wife does not work but will soon be graduating with a BS in nursing so she should have a job whenever we need one.

Once I do get out of the Marine Corps I will either go to school and get my degree and we will live of her income and the GI Bill or I will just move into the civilian sector.

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18 DDFD at DivorcedDadFrugalDad

We all have a Plan B. The difference is some people have an active plan they created and some have a passive plan they let happen.

I prefer the active plan myself. I often try to remember that people don’t plan to fail, they fail to plan . . .

I recommend cutting expenses before a problem, creating an emergency fund now, and having other ways to generate income.

The last one is important because it allows you to:

- Avoid having all your eggs in one basket
- Have stop-gap income protection
- Sideline or supplemental income
- Make a career transition
- Enjoy personal satisfaction

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19 Curious Cat Investing Blog

Use emergency funds. If I lose my job, try to find a new full time permanent job. Rent out a room in my house. Focus on making money online.

Look for a temporary job
– part time job
– contract work (project based work)
– a job I wouldn’t want to take forever

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20 Ryan

All good ideas, everyone. Thanks for sharing. :)

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21 Atkins

I have a multi-level fallback plan which includes: selling the house and moving to an apartment; reducing the number of cars down to one; eating $1 burgers; foraging in harvested farm fields for fallen grains of corn (gleaning!); picking berries in the forest; imposing on friends; imposing on family; and the biggie . . . moving to a Third World country where my capital from selling the house would go farther.

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