Home > Careers > Could You Survive Financially If You Lost a Job?

Could You Survive Financially If You Lost a Job?

financial disasterSome recent posts from Cash Rebel and Reach Financial Independence have really gotten me thinking about how much money we should be keeping in emergency savings and how fast we could go into survival mode if we had a sudden loss of income. Now that we have paid off all of our debt other than mortgages, I’m curious to see if we could get by on passive income alone. After all, isn’t that the ultimate goal of financial independence?

Ultimate Goals

Our ultimate goal would be to make enough passive income, mostly from rentals, to pay our necessary expenses. Anything we earned from salary or other endeavors would go into investments or retirement. While the timeline fluctuates based on the mood of the day, I think it’s reasonable to say we will have our mortgages paid off within the next 10 years. At that point, we can get by on very little. Because I sadistically like to look at worst case scenarios, what if we were suddenly faced with no salary income? Could we make it without resorting to panhandling?

Bare Bones Budget

If my husband and I both lost our jobs tomorrow, we’d have to go into survival mode. Our necessary monthly expenses would include:

Primary Mortgage: $1606 (We could sell our house and move into something smaller, but it would take a while.)

Electric, Propane, Water, Trash removal: $396

Food: $250 (I could cut out most fresh produce and meats, not healthy, but we can’t afford that.)

Car insurance and gas: $150 (I would decrease our limits and drop our umbrella policy. If we’re not working, we wouldn’t drive very much)

Internet: $22.50 (I could go to the library if we really had to cut this out.)

Phone: $50 (We would get a basic, pay as you go plan)

Misc: $100  (I’m sure I forgot something.)

Total: $2652.50

Things We Really Should Have

I guess we could cut out these expenses, but I really think it would be a bad idea, especially with no jobs.

Health Insurance: $350 (Currently, my daugher and I pay $190/month. My husband is covered fully by his work. I’m guessing at the cost to add him to our policy.)

Life Insurance: $77 (We have term life insurance policies.)

Dogs: $100. (It would almost kill me, but I’d have to choose the people in my house over the pets if it came to it. We’d have to turn Mo in to the shelter, and since Ralph is on borrowed time and requires medicines, he’d likely be put down.  It would have to be dire before I’d choose that option.)

Total for Almost Necessities: $527

New Total $3179.50

Passive and Alternative Income

I’m going to assume that I lose my jobs after my business sale goes through because I’m not going to fire myself.

Commercial Rental Net Income: $1662

Residental Rental Net Income: $367

Seller Finance Business Payments: $2500

Online and other: $500

Total: $5029

I’ve honesly never put those numbers down, and it makes me feel pretty good looking at them. We’d have an almost $1850 surplus, even if we had no salary income. Of course, we could also lose tenants, have expensive rental repairs, or the doctor who buys my practice could quit paying me, so it’s not without risk. The business payment will eventually be paid off, so that isn’t an infinite resource.

It would also be pretty sad to live long on our bare bones budget. The thought of ramen, pasta, or hot dogs as  our only meal selections leaves a bit of a bad taste in my mouth. We enjoy travel. We watch TV and rent movies. I go to spinning class. Our daughter does all sorts of activities. I’d hate to live without all that.

What’s the Point?

There really isn’t one other than to make me sleep better at night. I know in the unlikely event that my husband and I both lost our jobs at the same time, we’d be OK until we found something else.

The better point is that if I’d done this exercise three years ago, it would have included at least $1000 a month in credit card payments, $700/month in student loan payments, and $300-$700/month in car payments, depending on who had a new car at which moment. We also would have no residential rental because we would have never saved enough for the down payment. If you run those numbers, it gets a bit more scary.

I don’t like to be one to focus on doom and gloom, but I encourage you to do the exercise yourself. If you don’t like what you see, start making some changes. It won’t happen over night, but I’m living proof that you can change your financial future. A good night’s sleep is priceless.

What would you cut out to make a bare bones budget? Do you have enough saved or in passive investments to overcome a huge income loss?

Image: Freedigitalphotos.net/Dominichi

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

54 comments

  1. At this point, I couldn’t survive if I lost my job. That’s why I’m saving and investing like mad trying to build up enough passive income to cover all of my expenses. Hopefully, inside of 10 years I’ll be able to survive a layoff just fine.
    My Financial Independence Journey recently posted..A Brief Primer on Options: Part 3 (Two ways to enhance your dividend growth portfolio with cash-secured puts)My Profile

    • I hope you don’t have to ever experience any layoffs, but it sounds like you are making strides to survive and thrive with whatever comes your way.

  2. Our bare bones budget is pretty small. We would be fine for a while. We don’t have enough passive income to completely live off of quite yet. We are getting there!

  3. I certainly don’t have enough in passive investments to overcome a big job loss. It’s something I’m working on, though, and something that definitely will help me sleep better at night.
    DC @ Young Adult Money recently posted..Friday Giveaway Roundup – 147 GiveawaysMy Profile

  4. Looks like you are doing fantastic! As you have read, I am just about debt free minus the mortgage, but not even close to passive income trumping my expenses (like…not even close). Keep up the incredible work, Kim!
    Tony@WeOnlyDoThisOnce recently posted..How I Paid off $100,000 in Debt (and How You Can, Too)My Profile

    • You’ve come such a long way with paying off your debt. That’s a huge gain and I’m sure you can do anything you put your mind to now.

  5. We have enough of a cushion that we could survive, including the severance I would likely receive as well as vacation days. If we did some cutting, we could go as much as 3 months without feeling any impact, maybe longer. I think the big variable would be health insurance, which is pretty much the factor in just about anything to do with unexpected costs these days.
    Money Beagle recently posted..Is Flipping A Charity Auction Item Going Too Far?My Profile

    • I’m afraid it’s only going up as well. That is a huge expense we’d have to consider if we did stop working at some point long before age 65.

  6. Always good to plan for the worst in terms of finances as you just never know.
    Amy recently posted..How Can I get a Qmee Invite?My Profile

  7. Certainly relying on your passive income isn’t the right choice just yet (since you probably want to keep your dog), but it looks like you are quite prepared for retirement sometime in the next 10 years if you choose to go that route.

    Thanks for the mention in the post today!
    CashRebel recently posted..Budget Overhauls And Sustainable ChangeMy Profile

    • No, our hope now is to keep working and invest the extra income while paying off our remaining debt. With my husband’s new job, we will be bringing in quite a bit more in salary, so hopefully we can be prepared to retire maybe sooner than ten years. I also bet we won’t want to. I’m finding that the less work is tied to paying off debt, the more I like it.

  8. That is awesome that you can do without your work income. And passive income is diversified enough that it would really be bad luck if all sources dried up at once. Thank you for the mention.
    Pauline recently posted..Friday recap, strawberry ice cream and new roadsMy Profile

    • I would have to be the most unlucky person ever to have everything dry up at once. Let’s hope I’m not that unlucky!

  9. Our bare bones budget is pretty small and would cut some, but not a whole lot as we live pretty tight as it is. We have saved quite a bit that we would be able to live off of that for a while and the additional streams are starting to get to be where they could help out quite a bit too. Our goal over the next year or so is to get to a spot where we have enough cash to last a full year if need be, though I hope we’d never need it.
    John S @ Frugal Rules recently posted..Frugal Friday: Do You Know Who is Flipping Your Burger?My Profile

  10. I think the point of the exercise is to go so far to the extreme, that you can look at what you might be able to cut back on NOW that you don’t really need. I think if (and hopefully not) you were ever in that situation, you would have a harder time than you think doing something like taking your dogs to the pound. But doing the exercise will also help a lot of people get their head out of the sand, but because losing your job is very possible, and having an emergency fun will really help alleviate that stress.
    Budget and the Beach recently posted..Do I need an Emergency Fund?: One Cat’s DilemmaMy Profile

    • I honestly don’t think I could give up my dogs. i’d find a way if I had to stand on the corner and hold up a sign asking for dog food.

  11. If one of us lost our jobs, we would be fine. But if both of us lost our jobs? We would of course be screwed. Our EF could cover us for 6 months, but we would definitely have to find something else.
    Michelle recently posted..Easy Ways to Keep Your Pet SecureMy Profile

    • You have so many income streams, I have no doubt you’d be just fine and probably wouldn’t even notice much of a hiccup.

  12. I think you can overcome anything, but it may mean making lots of changes. I work because I like to more than the money generated.
    krantcents recently posted..It Is Not too Late to Do Tax Planning for 2013!My Profile

    • I’m hoping to get to that place. I think work becomes more fun when you don’t have to do it. More like a hobby or challenge maybe?

  13. Good thinking article Kim. I would cut out unnecessary things like our smartphones and many other things. I would probably try to sell the house, but as you indicated, that would take some time. I couldn’t live on side income, but it could make a dent in our expenses.
    Grayson @ Debt Roundup recently posted..Feeling Good Friday: Tragedy Unites UsMy Profile

  14. We definitely don’t make enough in side income to cover our expenses if we were to lose our jobs, but we do have enough saved up to last about 8 months on a bare-bones budget. Hopefully our passive income and our savings both increase a bunch in the next year like we’re planning on doing.
    Jake Erickson recently posted..When is it okay to spend your money?My Profile

  15. I lost my job in January so we are learning as we go! We’re doing ok so far. We have a few different pockets to pull from if we need to – we overpay on our mortgage each month and could cut that back if we needed that $500. We have some rental income each month and a fairly healthy emergency fund. As long as I’m not unemployed for years on end or we suffer another job loss or God forbid something worse, we should make it. It’s been a learning experience for sure and I’m so disappointed looking back at all the money I wasted while we had two incomes. Things will change spending-wise once I’m back in the saddle. Thanks for bringing this topic up. It’s something everyone should think about.
    Carrie @ LPOHH recently posted..Online Deals and Steals {April 19}My Profile

    • It sounds like you were pretty well prepared. I’m sure this will make you better in the long run, but it must be tough to deal with. Good luck with your job search.

  16. You’ve given me something to think about Kim; how we would fare financially if this were to happen? I need to figure that out!
    Mackenzie recently posted..If You Could Go AnywhereMy Profile

  17. Great post, Kim. Really makes you think. We don’t have passive income at this time, but we have a very robust emergency fund and I could shift some non-retirement investments around if needed. My husband works at a Corporate job so he is at their mercy, but I own my own business, so like you, I don’t plan on firing myself anytime soon nor am I planning on selling it at this time either. But business can always dry up (but hopefully won’t!) and it’s good to prepare for a worst case scenario. And I bet it does feel really good to look at the list and not see those debt payments and more passive income that you could have generated just a few years ago.

    Thanks again for your support of the Financial Literacy Awareness Carnival too. Your post was terrific. I appreciate your support and everything you’re doing on your blog to help people become more financial literate.
    Shannon @ The Heavy Purse recently posted..Financial Literacy Awareness Carnival: Why It Matters to MeMy Profile

  18. We have enough passive income to cover about half of our bare bones expenses, and enough savings to cover more than 6 months of normal expenses, so I’m fairly confident that we’d be okay for a while, though it would eat into savings.
    Mrs. Pop @ Planting Our Pennies recently posted..Actual Cost Of Owning A Pool – Part 3My Profile

  19. When we were creating our budget we did what I believe everyone should do and that’s create 2 budgets. One budget is living in the present and the other is an emergency type budget. Creating a budget to see if you would be able to survive on one income is smart to do because it gives you an indication of what to look forward to should something happen.
    Canadian Budget Binder recently posted..PF Weekly Reading List #16- I Give Up……………My Profile

  20. We try to live off of my wife’s income as much as possible since my income is so irregular. It would be tight, but we could life off of her income indefinitely.
    Her job is pretty secure, unless Kroger goes out of business, which I don’t see happening any time soon. She has enough seniority and has such a solid performance record that if layoffs happened, they wouldn’t to her. Hours have been cut recently, but she is still averaging well over the 33 hour per week minimum we have for surviving off her income.
    Edward Antrobus recently posted..Is Fear Paralyzing You From Being Frugal and Getting Out of Debt?My Profile

  21. Based on cash reserves alone, I could survive for a year or two right now depending on how lean I wanted to live. This is assuming I lived in a rental and rented out my condo to pay the mortgage. :)
    CF recently posted..6 Month Student Loan UpdateMy Profile

  22. We reached the point when both my husband and I lost our jobs and we were only depending on my income from my freelance writing jobs. It was very unstable but we made it through. We barely had a savings, which we used to pay our bills and loans, so it went zero in less than three months.

    Presently, we are confident that we can survive if we lose our jobs. We have learned our lesson. We now have an emergency savings account that can cover six to eight months of our expenses, and maybe a few dine out and movies.
    Manette @ Barbara Friedberg Personal Finance recently posted..JUMPSTART SAVINGS OR DEBT REPAYMENT WITH A SPENDING DETOXMy Profile

    • I’m so glad we didn’t have to learn the hard way. We were very lucky that we turned it around before something happened.

  23. I think I can survive for a year to two tops if I lose my job. This got me thinking that I need to increase my emergency fund for something unexpected that might happen. Still, I would try to look for another one asap.
    KC @ genxfinance recently posted..Being Broke Sucks, But It Forces You to get CreativeMy Profile

  24. I had to deal with this scenario a couple of years ago and only survived by cashing in a giant retirement account. I eventually found another job by my retirement money was gone forever.
    zimmy@moneyandpotatoes.com recently posted..Cancel Cable TV: Equipment to be Cable FreeMy Profile

    • Wow, that must have been a very hard decision. I would hate to be in that position, but you have to do what you have to do.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

CommentLuv badge