Monday, September 16, 2013

Does Your Parachute Work?

Things are finally looking up for me financially. Nevertheless I still operate on a thinner margin than I would like. It's taken hard work to get where I am and will take more hard work to get where I want to be. Bad decisions made years ago have ripples down through the decades. There's nothing I can do about that except live and learn. I was reminded of all this recently while I was stopped at two different expressway exit ramps, watching two different young men hold up signs asking for help. They avoided eye contact and I'm sorry to say so did everyone else. They had what appeared to be their worldly belongings in either a milk carton or a backpack. Of course you see people like this all of the time and unfortunately you get used to it. Some people make bad decisions in life. There's plenty of work if you aren't lazy. It's not my problem. There's a decent safety net. Maybe those people all have substance abuse problems. And so on. Those are the things we privately tell ourselves in order remain convinced that WE would never fall so low as to be begging on the street.

But recent unfortunate events in my personal circle of family/friends and the news that the income gap between the richest 1% and everyone else has grown to the widest ever and that even the top 10% are also taking more than half of total income, also a record, have made me wonder (and will hopefully make you wonder), does your parachute really work? How easy is it to find another job that pays the same or more as the one you currently have? How far are you really, from begging strangers for money? 

Let's say you work for someone else. If that person died, transferred or retired, just how safe is your job? I've had the experience of a new boss arriving and wanting to hire and promote his or her own people. Depending on company culture, holdovers from the old regime might just be fired on the spot or not so subtly harassed until they transfer or quit. If your company decides that your services could be better and more cheaply performed by someone else, whether in this country or even overseas, there might not be any hint of change, just a terse email and a humiliating walk-out by company security. I've seen that happen too. It's also true that by the time you reach your forties and fifties and are at or near your maximum earning potential you are also a tempting target for a firm looking to save on salary and benefits or bring in younger and more malleable workers. If you work for yourself and make a mistake in business plan or your leverage you could also lose everything and watch your company go belly up. In any case no matter what happens to you the world will keep on turning. There are very very very few people on this planet who care quite as much about your well being as you do yourself. Because ultimately it's your life. You are the person who will reap the benefits or bear the costs of choices that you make.

If whatever you do today for money was no longer viable starting tomorrow, just how long would it be before you were on the street asking for money. My macho pride says that would never ever ever happen to me. I'm a (insert family name) and WE don't do that. But sometimes I'm not so sure. No one can see the future. Whether it's medical bills, lawsuits, divorce, bad personal habits, deaths, job loss there's always something that hits you when you least expect it. There are numerous calamities that could wipe out whatever financial stability you've attained. Winter is coming for us all. We don't know exactly when but it is coming. Count on it.
Now there are also tons of ways to deal with this risk and we've discussed some of them before. Spending less than you earn and saving the difference is the number one solution. Playing your cards right and regularly saving your money immediately after entering the workforce can give you a nice little nest egg by the time you hit your late thirties, forties and fifties and presumably start to slow down a little. Starting a side business is a great way to bring some extra income into your pockets. Keeping your skills up to date, staying in touch with close friends and family, avoiding or limiting consumer debt and getting married are also helpful. Divorce is obviously a big risk but having a second income and/or a second pair of hands to perform tasks you otherwise would have to spend time and money on is a huge advantage of marriage.

Still although it is ultimately on the individual to find his way through life I can't help but wonder if the changes we've made in our political economy over the past forty to fifty years have really helped more people than they've hurt. The economy is a man made entity. We can make changes in how we do things. There's not any good reason that we have to accept that the work participation rate in the US is at a 35 year low. Whatever bad decisions a particular homeless person might have made they did so against the backdrop of a US economy that is not producing enough jobs for everyone who wants one. But on my own I can't change that. I would need your help and that of millions more. But I can change my financial situation. To do that I need the help of much fewer people. So that's what I try to do.


If after you read this your current income was abruptly eliminated what would you do?

How long could you survive at current spending habits without income?

Do you have people who'd be willing to support you? How long? Indefinitely?

Do you have sympathy for the homeless? Do you give money? Volunteer at shelters?

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