Americans lost their jobs last month at the fastest rate in five years and that doesn’t include the thousands of financial service employees affected by the recent industry meltdown.
Despite record level downsizing, the Spherion Employee Confidence Index surprisingly still reports that a third of all employees plan to make voluntary job changes. As such, investing in our careers may make the best financial sense right now.
Everyone needs to start a "Career Asset Working Capital Fund." This is a specific amount of money earmarked for the unique financial requirements of career transitions. This fund should be kept separate from personal or family emergency cash reserves.
The Career Asset Working Capital Fund should be used to fund such job/career transition needs as:
1. Skill set maintenance and development. The fund may be used to keep your skills up to date for your current or desired profession—beyond what training programs your employer may offer. For example, information systems skills are relevant for maybe two years.
2. Schedule, employment status, or salary changes. A Career Asset Working Capital Fund can be used to help supplement a pay cut, reduced income due to a reduced schedule, or a status shift to working as a project contractor.
3. Job changes. Nearly 300,000 layoffs were announced last quarter. According to the Department of Labor, new workers face nine job changes during the span of their career. Some may include lags in employment; in fact nearly 20% of jobless Americans have been out of work for at least 27 weeks. Last year Salary.com reported that 60% of job hunters were not just looking for a new job, they wanted a new career. Yet, the Reinvention Institute reports a career reinvention takes an average three to five years to complete.
4. Career sabbaticals. Only 4% of employers today offer a paid sabbatical. With Family and Medical Leave, jobs may be protected, but salary is not.
The amount required in a "Career Asset Working Capital Fund" depends on your type of career, salary level, job risk, job change frequency, and life transitions you may face in the future.
If you are part of a layoff, make the following financial planning steps. The steps may vary if job loss is due to work force reduction or performance related issues.
1. Determine if you are eligible to apply for unemployment immediately.
2. Proactively contact your creditors notifying them of your employment situation and plan of action to acquire employment. Ask about the minimum payment you need to make on outstanding credit. Do not pay off the debt any sooner than absolutely necessary—cash and lines of credit are king when you are unemployed.
3. Prepare a survival budget with expenses ranked in order of importance, e.g. mortgage payment and groceries before vacation and entertainment. This budget should include only the bare necessities and minimum payments required by creditors. Be sure to identify all sources of available income during unemployment. This includes unemployment compensation, family maintenance, and any other potential income sources including part-time or independent contract work.
4. Prepare a net worth statement, paying close attention to liquid assets and available lines of credit. This liquidity that will cover your survival budget shortfall. Calculate how many months are covered by your liquid assets and credit lines.
Most financial plans are still based upon traditional, static employment and retirement patterns, not a career where people may have to change how, when, and where they work many times. That’s why a fund for career transitions should be a necessary part of any employee’s financial plan.
Michael Haubrich is a fee-only financial planner and president of Racine, Wisconsin’s Financial Service Group. He is known for creatively blending traditional financial planning with current thinking and tools to meet the work and life realities of today’s clients. He developed Career Asset Management, a process to help individuals, financial planners and career coaches work together to remove financial road blocks from the career transition process.