We've all heard the phrase "Save for a rainy day". A "Rainy Day" is defined as "A time of need or trouble". Whether you set a percentage of your paycheck aside or wait till tax time to deposit a bigger chunk in savings, we're all forced to think about the unexpected. The so called "rainy day" fund is money you hope you'll never have to spend but preparing for the unknown helps to soften the financial sting for life's unexpected moments. Who wants to spend $1,000 on a new water heater or $2,000 on unexpected car repairs?
It's just another one of life's unexpected moments. There have been many so called unexpected moments - most have been small but manageable. But have you ever thought of a Rainy Day being bigger than just a broken water heater or random car repairs? The Rainy Day most of us never see coming.....the one that can destroy your finances, wreak havoc on your day-to-day living and it's big enough to possibly turn your world upside down. I'm talking about a Job Loss!!!
There I was on June 14, 2017 sitting across from my boss as he nervously announced that a decision had been made to eliminate my position and my last day will be June 16th. It was clear he felt bad as he fumbled over his words. I was completely caught off guard and in a bit of shock as I've always been the one with a planned exit strategy. Yet there I was experiencing a different set of emotions for the first time ever. After my boss's exit, I sat there thinking about our recent decision to take a 7 day vacation to Italy and whether I should cancel. I called DH right away and broke the news and after his initial reaction of shock his response was "Don't worry about it. You weren't happy there anyway".
That's the truth. I wasn't happy. So immediately after speaking with DH, I felt the freedom I had been silently dreaming of. At some point after the New Year of 2017 I started desiring a "break". I would say out loud to whoever would listen "I wish I could just not work for 3 months". So in a weird way, my job loss felt like a gift. I got to experience something I've always wanted....MENTAL FREEDOM. So how did DH and I survive 7 months on one income? Here's how.....
HOW TO PREPARE FOR A RAINY DAY?
I truly practice some of the things I wrote about in my earlier posts.....the most critical being "Living Below Your Means". That is the single most IMPORTANT element to smart money management. Most people say "Live within your means" but that only indicates that you spend most of what you make. When you strive to live below your means, your high savings rate will enable you to compound cash at a much faster rate.
AVOID FINANCIAL DECISIONS THAT REQUIRE 2 INCOMES
When we got the bright idea at the end of 2016 that we wanted to purchase a 1 family home it didn't take very long for me to pull the plug on that idea. The numbers simply didn't add up. The numbers dictated an absolute need to have 2 incomes at ALL times. If one income disappeared our finances would fall in a stress test situation. As a result, we made a decision to remain in our 2 family home and forego the idea of the dream house. Turns out we dodged a bullet and that decision was almost like a premonition as we had no idea a job loss was on our horizon 7 months later. This doesn't mean we'll never buy a one family but if that situation ever presents itself we would approach that decision very methodically.
LIVE ON ONE INCOME
Because we managed to keep our expenses low we can survive on DH's (Dear Husband) income without having to tap our cash reserves as we were experiencing the "rainy" season. If you're in a 2 income household, living below your means can possibly allow you to Live on One Income. I know that's not always feasible and everyone's job and income level varies greatly but we were able to build risk in our finances by living below our means.
DETERMINE HOW MUCH IS ENOUGH
So how much money is enough money for those unforeseen rainy days? I'd say having enough so that when it comes you can still sleep at night. The finance world claims that having 3-6 months expenses saved is sufficient. I think 6 months should be the absolute minimum. I'm a bit more extreme so I manage our finances with a time period much longer than 6 months. That's because I almost always make decisions considering the absolute worst case scenario. We didn't have to touch our emergency fund until the "Rainy Day" became a STORM. Stayed tuned for Part 2 to hear how Murphy's Law took over our lives for the last 3 months.
So there you have it....a JOB LOSS....the Rainy Day you never see coming and how we survived those 7 months on a single income.
What was your "Rainy Day" and how did you survive it? Leave me a comment below.