February 04, 2010

It Can Happen To You!

A couple of years ago I started putting our financial house in order. I subscribed to a two personal finance blogs (The Simple Dollar, and Man vs. Debt). I read their archives and went to work.

Thank God I did. It forced me to look closely at our expenditures and I was able to cut out a whole lot of wasted money. Now I'm funding our emergency fund as quickly as possible. I'm aiming for 6 months of living expenses in there. Unless something really bad happens, we're going to weather this recession.

My friend Margaret (not her real name) and her husband haven't been so conscientious and now they're in trouble. M. had a well-paying job until she was injured on the job in December of 2008. She hasn't been to work since, and there's serious doubt that she will be able to return to her old profession.

Shortly after they married, her husband quit his full-time job to start his own business. He struggled along and they paid their bills with a good bit left over for a few luxuries. He plays in a band and they were able to spend a good bit of money on drinks with friends and family at his gigs. She also had the money to spend on personal grooming (hair, nails).

But all that changed a few months ago when her worker's compensation claim was closed. To compound matters, during the last year or so her husband's business began to fail and has now all but died.

What's incredible to me is that they didn't make any substantial lifestyle changes when she became unable to work.

They now have no income other than the little bit he earns playing in the band a couple of times a week. They're behind on the mortgage. She just got food stamps yesterday but won't know if they'll get cash assistance or not until her 401(k) is evaluated by the state.

How did this happen? These people had much higher incomes than my husband and I. She has a financial advisor, even. Although she hasn't told me so, from what she has said about her finances I believe they had very little savings other than that 401(k). I can't help but wonder what advice her financial person gave her. Was she advised to save for a rainy day, and didn't? Or have they burned through the savings?

What frightens me is that this could happen to anyone who doesn't have a good emergency fund. I know, because it happened to us - twice. We almost lost our house once because my husband was injured and off work for 3 months. Three months. That's all it took for our financial house to come crashing down.

Ladies and gentlemen, Grandma was right. "Save it for a rainy day" isn't just a quaint homily - it's crucial to survival in today's world. Would you be able to survive if you and/or your significant other lost your jobs or were injured and unable to work?

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