Let's begin by stating the obvious: We're knee-deep in an economic recession, and it's a doozy. But, what exactly is a recession? Technically, a recession is two consecutive quarters where the Gross Domestic Product (the measure of all the goods and services produced by a national economy) shrinks. This doesn't happen often, but every now and then for a variety of reasons, economies can shrink, which is exactly what we're going through now.
The most acutely painful part of a recession is widespread
job loss. Losing a job at any time can be an extremely stressful event. Psychologists who rank life-events in terms of stress put job loss near the top of the chart...and for good reason. Losing a job can be like having your financial oxygen cut off or being trapped in a room that is filling up with water. It's scary.
During a recession more people than average are looking for jobs with fewer businesses hiring. A rapidly increasing number of people are competing for a rapidly decreasing number of positions - a predicament nobody wants to be in.
How should a Poor Little Rich Girl deal with this situation? First of all, a little fear is a good thing in this case. This recession is serious, and it calls for a measured, sober response. It's tempting to keep on as if nothing is happening but putting together a basic game plan - what to do if lose your job - will help you sleep better. And if something does happen, you'll be able to take it in stride, rather than be completely blindsided.
STEP ONE-If you have a job now, take it seriously.
Reduce idle chit-chatting and time wasting. No more long lunches. No more calling in sick on Fridays. Don't let your boss catch you on Perez Hilton when you've got a big project due. Adopt a visible appreciation for having the opportunity to work for the company (or at least fake it). Assume that at some point management will be looking at a list of employees, deciding who to cut. Make sure that you are NOT on that short list.
STEP TWO - Develop a ‘Laid-Off Emergency Plan'.
If you lose your job, it's going to be vital to watch your cash flow. The first thing to do is calculate your "Monthly Burn Rate." Look at your bank statement and pick out all of your fixed expenses - your rent or mortgage, your cell phone bill, your credit card bills, your car payment, your auto insurance, student loan payments, etc. (basically any fixed, monthly, regularly occurring cost). Total these up for each month. You'll probably get a number between $2000-$4000. This is how much money you'll go through even if you completely cut out all going out, shopping, etc.
STEP THREE- Add up your savings and assets.
Divide these into two categories. The first is cash or near-cash equivalents (checking accounts, savings accounts, CD's), and the second is investment and retirement accounts - 401ks, IRA's, etc. You can tap into the second pot if necessary, but you really want to avoid doing this.
STEP FOUR- Divide your savings by your burn rate,
to figure out how many months you could last without any income. If your monthly burn-rate is $2500, and you have $5000 in your checking account, you could last two months without any income.
Fortunately, most people who lose their jobs are eligible for unemployment benefits, which in the state of Illinois pay up to $385 per week. You may also be able to negotiate a decent severance package with your employer. So how long could you truly last if you lost your job? Take your burn rate, and subtract your unemployment income - this is your monthly shortfall. Based on your current savings, how many months could you last? If you have no savings, how much in additional support will you need each month until you find a job? These are important facts to discover.
Recessions are not a fun time, but they happen. And although they can seem catastrophic at the time, in the big picture they really aren't all that terrible. You're not going to starve and recessions don't kill you (unless you were starving before the recession...in that case you really should be figuring out a way to not be starving, rather than surfing the internet) The stress that the recession and a job loss cause - especially to single people, or people without children - is more embarrassment than anything else. In the worst-case scenario you'll have to crawl back home to mom and dad or lean on a generous friend. And recessions, like anything else, will end. The economy will start growing. Businesses will start hiring. The sun will shine again.
But be prepared, just in case.