Help me with loss of job budgeting

ellenjFebruary 6, 2009

My husband just lost his job with a company he has been with for 25 years. He has worked there since high school and worked his way up the company ladder from a minimum wage worker to a district manager. He was currently earning about 100,000 a year. We had about 10,000 just in savings but one of parents recently died and we found out they had no life insurance. We used the bulk of those funds for funeral expenses.

We currently have about 2000 in a savings account. We have about 175,000 in his 401K in addition to company stock. He can keep the 401K in the company's account until he is 65 since he has been there over 10 years. The stock can remain for 2 years and since we lost about 30,000 in retirement savings and its doing poorly (as are all), it is staying there to hope for a rebound.

He will receive about $7000 a month (before taxes) for the next 4 months as severance. He was putting about 2000 a month in his 401K, our health insurance was 450 and he had a 3000 401K loan (for the downpayment on our home). We were using about 3000 a month of his salary. If he hasn't found a job, they will also allow another 10 weeks of salary. He has also filed for unemployment and I think it will be around 3000 a month for 22 weeks.

He will still receive his yearly bonus against sales because it was up to certain date. The amount he will receive is around 15,000 (after taxes).

I make 23,000 a year as a secretary at a private, expensive University. We have 2 kids that will be coming to college age soon. Their tuition is covered by my job. It amounts to about 35000 a year in savings. Not something I am giving up. I have picked up our lost health care insurance,which is a better plan and cost less than we were paying for his. That will be 280 a month for family coverage.

Our mortgage is 1300 a month. We also have 5500 in credit card debit and 5000 personal loan. Our one car is 210 a month. He lost his company car with the job. We don't plan to buy anther right away. I can do without for now. Other than utilities and food, we are pretty clear.

Would you suggest using the bonus money to pay off our credit card balance and loan? Credit card is at 8.99% and loan is at 11%.

This is a shock. He has been at this salary rate for about 2 years. Prior to that, he made about 65000 and I only worked part time, kicking in about 8000 a year. We aren't used to big bucks but it was really nice to finally have some left over and not continually struggling.

He has a few leads on jobs but we are realistic in that he won't be making 100,000. If he finds a job at 50-550000 I will be shocked. His quality of life will definitely be better because he traveled everyday, driving up to 3000 miles a week. So much stress. 24 hours a day on call.

My husband is also planning to take up umpiring and reffing local sports on the side, bring in a few hundred bucks a month. (he loves sports so thats fun not a job). He also teaches baseball classes to young kids (cash). Another few hundred a month.

We aren't behind on any bills and haven't been. Don't want to start.

Budget planners - I'm not afraid to get frugal. Help me plan. I don't shop except for necessities and I only buy on sale. My kids have part time jobs and have their own spending cash.

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I would certainly get rid of as much debt as you can. You sound like you at least have a good handle on things and have a couple of 'lucky' factors - the fact your husband does have that severance (and bonus), plus your job which sounds fairly recession proof all things considered. Your mtge sounds reasonable, and your husband's coaching will bring in some real money - don't start worrying immediately about replacing "100,000" a year off the bat. That may not happen (and I think you know that), but you'd be surprised at how well you can live on even half of that if you plan carefully and keep your priorities straight. I doubt if you really need to be told about skipping lattes and expensive dinners, but don't be afraid to have pizza once a week or month, if only to keep you all sane. In the end, with some good budgeting, using both your smart heads and a little luck, off in the future as it might be, you should be ok for quite a while I think. Don't make hasty decisions on big items right now, take a little time to examine all angles, talk to your bank mgr., and/or whoever you really feel are good money people, and see what kind of advice they have for the short and long term stuff. I should tell you I've been where you are (actually pretty much in very similar circumstances money wise) and can tell you that not only does the sky not fall, but sometimes good things show up completely unexpectedly to help out! Good luck and keep us posted.

    Bookmark   February 6, 2009 at 8:50PM
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Take a breath everything will be ok.

Given your specifics your family is in a better situation than most. It also appears you've made some pretty smart decisions up until now so Im sure you will be fine.

My advice is to put everything into the bank for now and make your decisions once some of the "ifs" become clearer and some of the emotion,shock,and fear wears off. You can always write checks to your debtors at a later date.

Personally the first thing I would do is cash in the company stock and invest into mutual funds. Not sure what the overall value is but many times people make the mistake of having too much of their world wrapped into 1 company. If they go under you are hurtin. Your husband just got laid off. Seems to me the writing could be on the wall.

Keep your head up,good luck

    Bookmark   February 9, 2009 at 12:32PM
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Mutual funds are not the way to go now, only once the market turns around and looks to be good for some time.

    Bookmark   February 9, 2009 at 1:53PM
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I would build your emergency reserve up to at least 6 months, maybe longer. Pay your bills as they come due. Companies are still laying off, companies are not hiring. IMO, we are nowhere near the bottom yet.

    Bookmark   February 9, 2009 at 2:26PM
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True, mutual funds are risky now but not as risky as owning lots of stock in 1 company that is laying people off. Definately pile up cash.

    Bookmark   February 10, 2009 at 9:48PM
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Hold onto as much reserve cash as possible, and SLOWLY prepay your debts down, giving priority to the ones that charge the highest interest.

The stock market is not going anywhere anytime soon. But selling stock in your 401K will lock in your paper losses. That would be a shame. Hold onto the stock holdings and just forget about them for now. Eventually, things will turn around, but not anytime soon.

But your strategy for Company stock might be different, and that depends on the condition of the company and what percentage of your 401K is invested in the company. I think only about 5% of your 401K stock holdings should be in company stock, and the rest should be in diversified mutual funds, preferably index mutual funds with a mutual fund firm like Vanguard, because their expense rate are rock bottom. If you hold substantially more than 5% of your 401K stock total balance in company stock, it might be a good idea to get an impartial assessment of the value of the company stock and its long-term prospects. You can do that in your public library by looking up the company in VALUE LINE, MORNINGSTAR or in STANDARD & POORS -- these 3 publications rate the financial soundness of most publicly traded companies. (Make sure you ask for MORNINGSTAR stock publication, not their mutual fund publication.) If the assessment is negative or less than bright, it might be the right thing to sell all or most of it and invest the proceeds in an index mutual fund of short term bonds. Vanguard and Fidelity have such a fund, and other mutual fund companies too. If you are going to sell any company stock, I do not think it's a good idea to invest that money in the stock market right now, because the market may go down more -- the downturn has not come to an end yet. At least with a bond mutual fund, you can earn some interest. And stay away from "long" bonds or bond funds, because their price fluctuates too much. You want a fund with bonds of up to about 5 years term, no longer than that.

Good luck. Stay safe and healthy. And give yourself and your family small treats often, things that make life worth living.

    Bookmark   February 10, 2009 at 10:15PM
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I agree with Hausproud - get rid of the company stock or most of it but keep the 401K in its current configuration (don't sell the stock portion).

Personally , I would try to cut expenses as much as possible so I would pay off the personal 11% loan with the bonus money. See how much is left and what your net balance will be if you paid off the other loan. I take it that the $3000 401K loan has been paid back?

Good luck.

    Bookmark   February 11, 2009 at 8:54PM
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