JUST GOT... FIRED
Or laid off, or shuffled into a dead-end job with no hope of promotion and the salary increases you were expecting — assuming your company even keeps pace with inflation or better. In some ways, job loss or unexpected underemployment is the easiest to talk about and the easiest to prepare for. In today’s economy, no one should feel safe and secure about their job being there for life. Only 30% of people stay in any one job for more than four years, according to a Workopolis report, Thinkopolis IV: Time to Work. If that trend continues, millennials can expect to have 15 different jobs during their careers and about one in five of those jobs will be a result of setbacks such as cutbacks, layoffs and lack of advancement. And 73% of Canadians don’t even expect to stay in the same profession.
Knowing you will likely spend some time not working, whether that’s your decision or one forced upon you, should make it easier to understand why a financial cushion should be in place before that eventuality happens. “For the average person, an ideal place to start is to make sure you have that emergency fund, because when something goes wrong, cash is king in the moment,” Britton says.
Planners say that fund should generally be enough to cover three to six months of gross income, which is easier said than done. Having cash on hand is just too tempting when something comes up that requires a bit of extra cash. It could spur decisions to spend more on things such as unnecessarily expensive cars, electronics and vacations. That’s why Britton advises that those emergency funds be at least one step removed from your day-to-day financial transactions. For example, they could be held at a different bank, tucked away in a Tax-Free Savings Account (TFSA) that is separate from your other accounts, or in an RRSP, which is harder to access and has penalties to use. A hybrid would be to start with a TFSA and then move the money over to an RRSP to enrich the immediate tax advantages when filing a tax return. “At the very least, add a layer of conscious decision to it,” he says. “People don’t always end up in a bad financial situation because they’ve made bad decisions. For a lot of people, it’s because they’re not making decisions at all.”
Also remember that employment instability can be just as devastating as a job loss, says Ted Rechtshaffen, president and wealth advisor at TriDelta Financial in Toronto. If your financial plan calls for a 2% annual gain in income for 15 years until retirement, what happens if you get laid off in year two of that plan and then have to take a job that pays 60% of what was planned? It’s better to know what you might have to change to accommodate that new reality than to wait and then have to decide in the heat of the moment.