My regular readers (or those who have delved into the archives) may recall an earlier post about my recent employment insecurity. The concern was imminent redundancies were afoot, and although we are an organisation of over 5,000, my “doom and gloom” tendencies took over and I assumed the worst.

I began preparing for redundancy as if it were going to happen the very next month. This is not a bad idea even if you are not at risk; Fully identifying your financial position, and preparing a plan in advance of such a disaster can mitigate its affects. Identify all your actual and potential sources of income. What are your obligations in terms of mortgages and other debt payments? Do you have savings? How quickly could you obtain government assistance, and what kind would it be?

I am in the fortunate position of living at home with my parents again, following my marriage breakup. The government, if I were made involuntarily redundant, would pay me £64.30 a week as Job Seeker’s Allowance, or £257.20 a month. As it stands, this would be of no material use whatsoever. My loan repayment alone is £413 a month, and that doesn’t even begin to take into account essentials such as food. The loan is insured against such an event, so it wouldn’t be a total disaster for me – but what about you?

My goal was to be debt free by New Years Day 2010. The employment panic set in around August, which gave 4 months until my target – and I was not convinced, in the slightest (courtesy of my “doom and gloom” attitude!) that I would make it. So, I began a frenzied attack on my already pared down budget, and began working myself into the ground grabbing all overtime possible.

How am I doing? … tired.

I have taken a step back now, and calculated my legal position. By virtue of UK employment law I am entitled to a weeks pay (a statutory minimum of £380 a week, if no higher is paid at the discretion of the employer), for every full year of employment. I am also entitled to a minimum of a weeks notice for every full year employed, or pay in lieu.

The interesting point from this little mental arithmetic is that I would be due either 4 weeks full pay and 4 weeks statutory minimum pay (if not more), or 8 weeks notice and 8 weeks statutory minimum pay (again, if not more) depending on my choice to work the notice period or not.

Bottom line, if I had bothered to look back in August, is my target would have been met no matter what. What my little journey to exhaustion lane has done though, is bring forward my debt freedom date somewhat, and I know that I can go into next year without any major concerns of sudden instability.

I have also read the Head Cheese’s budget report for the next financial year, and my department appears unaffected. So it appears things are good until April 2011 if nothing else!

Good times!

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A few days ago I wrote that for every two steps I take forward, I appear to suffer being pushed back three. I could not see any way out of the situation I was facing, and it started to eat me up from the inside.

I am a naturally pessimistic person and automatically assume the worst of any given situation or list of potential outcomes. When the second “we don’t have any money” email came out from the Big Boss at work, I concluded that redundancy was only a paycheck or two away. It may well be, but I don’t know that. It could conceivably be a year or two away. Equally I may escape redundancy altogether. It’s entirely an unknown quantity right now.

I saw my goal of debt freedom within my grasp. After freeing myself from consumer debt, I had planned to speed-save my way to paying for my divorce when the bill finally comes in and then starting to save for my future. Everything was going to plan until those darn emails. Debt-freedom suddenly vanished.

If I paid my debt off in November when the spreadsheet said I could – but then get made redundant – I won’t be able to pay my solicitor. Net result: Still in debt.

If I carry my consumer debt but set aside a proportion of my savings  I have to pay my solicitor when the time comes – but then get made redundant – I won’t have enough to pay the settlement fee on my loan. Net result: Still in debt.

Whichever way I regurgitated those scenarios, I came out with the same result. This virtually demolished all the emotional building up I’d given myself over the past year in short order. I felt (and still do to a degree) like I was back in December 2008 again: Out of time, out of options, and despite all my hard work, still out of money.

Then I read an article over at The Simple Dollar while randomly surfing. I don’t remember which and didn’t have the presence of mind at the time to bookmark it, so I am sorry I cannot share the origin of my epiphany with you. But it provided an amazing idea to me.

If I carry my consumer debt but set aside a proportion of my savings to pay my solicitor – and then get made redundant – I can claim on my Payment Protection Insurance! I am uncertain if the cover lasts for 12 months of payments or “until employed again” (I need to read the small print), but either way, it’s a winner. If they will cover 12 months of payments then my end-insurance settlement will be somewhere around the £4,000 mark. I will have that in savings even after paying off the solicitor, with any luck.

My perception shifted.

My goal is now to become notionally debt free, even if I don’t make it happen the moment it becomes theoretically  possible. When (if?) I get comfortably beyond a positive net worth, then I will consider actually making the settlement payment. Until then, I will keep my final piece of consumer debt. The insurance on it may perversely provide a lifeline allowing the payment of another, future debt.

So thank you Trent for indirectly providing me with the idea of how to dig myself out of a hole that has not been dug yet except in my head. But having the rope and tie-off point prepared should it happen is very comforting.

The take-away lesson from this is, I guess, however bad things seem – with enough effort and help from your friends, there is always a way out to be found.

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Where I work, we use SAP for Payroll and shift planning. It’s a dog of a system, truth be told, but it does have one advantage: ready access to historical data for ‘ordinary’ people (i.e. non-SAP administrators) like myself.

I decided to pull out how many hours I have worked each month since I have been there, to see if the stages of my life could be identified easily in the hours that I had worked each financial year. It only took  about an hour to do in total, and most of that was spent inputting the data onto my own spreadsheet for graphing purposes.

What I found, shocked me.

Seven Years in a Graph

Getting Married

If you have read why this blog even exists in my Financial Meltdown series, you will be aware I am now separated from my wife. If we delve into the year I got married (2005), you can see the events as they happen in picture form.

OV is OVertime hours (i.e. staying on longer than an existing shift). OTIRD is OverTime Including Rest Days Worked. RD is Rest Days, and AL is Annual Leave taken.

In the run up to my marriage in October 2005, I was working hard to save money for the wedding, the honeymoon and the venue payments. Come October, I took a decent chunk of annual leave along with my Rest Days. When I returned to work, it was at fewer hours than before with some more annual leave used.

At the beginning of our marriage, life was good. We enjoyed each others’ company, and thus I was spending less time at work. I did the minimum required for a while just so we could be together.

The Honeymoon Period

After I got married, I virtually stopped working over my alloted hours at all. I did very little overtime at all for 2 years. I was enjoying life, enjoying being with my wife, and not realising I was running up thousands of pounds of my own debt and her as well.

It looks good, but right where that graph drops off at the end, things began to go sour. I quietly realised our money situation was dire. I chose to bury my head in the sand. For two years I ignored my debts. I never missed a payment, but I was slowly heading toward implosion. My wife added her own issues to mine.

Our relationship did much as the graph did. Rolled down hill. Rapidly.

End of the Road

I began working harder again. As much to make more money as it was to spend more time out of the house away from the woman I had married. It was the nail in the coffin for our relationship – as if one were needed at all. I still stuck my head in the sand but at least I felt better for working more.

Towards the end of that graph, crunch time came. My wife left me, I handed back my home to the landlord, and I had my financial meltdown.

And I took my head out of the sand at last.

The Future (and Now)

I (and you) will have to wait until the end of this financial year to see my recovery in pictures. Assuming I get to the end of this financial year still in gainful employment.

Does your life play out in the hours you work?

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I am feeling a little blue today.

It seems that life takes great pleasure in kicking you when you are down, and today has been no exception.

One Step Forward

It started off well: I should have been off work today enjoying my long weekend, but instead I had arranged to go into work for 8 hours overtime (6am to 2pm).

The day got even better when I was asked to stay until 6pm instead. 12 hours at time and a half.

Despite how facetious that may sound, my regular readers will know I am working to pay off my debt before New Years Day 2010, at the very latest. A renewed sense of urgency was provided by my employer when they sent round an email two months ago warning that we were facing a significant funding short-fall over the coming years, and salary cuts were not outside the realms of possibility. Any and all overtime is therefore extremely welcomed, and worked in earnest towards my goal.

Two Steps Forward

As I was edging closer to being one or two months away from being able to pay off my largest, final debt, I phoned my loan provider today to ask what the settlement figure would be if I paid today. I couldn’t of course, but I wanted to know precisely how far away I was, as simply calculating on the loan outstanding is only half the equation.

It’s quite a complicated affair. There is an early settlement fee of 1 months interest if settled early at all, or 2  months interest if paid before at least 50% of the loan term has passed. There is also the added complication of a scaled percentage of the loan insurance being refundable, depending on what stage the loan is at.

If I paid today, I have precisely £8,036.64 outstanding (or $12,726 USD for my readers across the pond).  That is still £2,200 more than I have, so paying today wasn’t an option. But next month could well be!

One Step Back

All sounding quite good so far isn’t it?

Except, as of next month my eligibility for a 56% loan insurance refund expires. From next month onwards until sometime late in 2010, I become eligible for only a 26% refund instead. Despite my £415 payment next month, I will actually owe more afterward than I do this month. The settlement figure for next month will be in the region of £8,400. Canceling the insurance altogether whilst tempting, is not viable due to…

Two Steps Back

I found an email from the Big Boss with an update on the 5 year forecast for our organisation. It re-iterated the problem in the last email we all received, but put it starkly that despite looking initially at non-pay budgets, there will have to be cuts.

Department heads have been asked to identify 2% savings for next year, saving as a whole £5 million for 2010/2011. If it stopped there, I would not be too concerned. A one-off saving of £5m in an organisation the size of ours would be achievable with relatively little pain and likely no compulsory redundancy whatsoever. That £5 million though is merely the tip of the iceberg.

After 2010/2011, we will need to save £7.5 million every year until at least 2015.

Compulsory redundancy across the entire organisation is a certainty. My department may be insulated from the initial round, but I do not see how we can reasonably escape the entire period unscathed. Bad, bad times are ahead and I really dislike this feeling. I have worked for the same organisation for coming close to 8 years. I enjoy my job, I am good at it. The pay enables me to plan for my future.

Without it, and in the current financial climate, I no longer have a sense of direction.

Even the best case scenario is emotionally unpleasant – 5 whole years of wondering if I will have a job month after month. The recession has thrown my 5 Year Plan (and countless others, of course) out the window. My dream of becoming a home-owner in 4 years time, faded with this evening’s sunset.

Three Steps Back

A letter from my solicitor had landed on the mat for me when I got home.

Half expecting some good news, it was instead, the third and final kick of today. My wife (who wanted the divorce in the first place) has decided to contest it and defend the matter in court.

As she is bankrupt and to my knowledge unemployed, the public purse will be paying for her defense courtesy of Legal Aid, while I continue to pay for my solicitor and subsequent court hearings out of my own pocket, if there is any money in them come the end, given Kick Two.

Closing Thoughts

I must get consumer-debt free, and soon. It is reasonably likely that employment will continue for at least another year before anything starts rumbling in my direction; yet I cannot help but worry about “What if I get made redundant tomorrow?”. All my hard work over this year would virtually have been for nothing.

All my hopes, all my dreams, all my plans, gone in a single stroke.

What will I do?

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In 2006, long before I came to the realisation that my finances were in a dreadful state, Trent over at The Simple Dollar proposed a simple question.

Living on Half Your Monthly Income: Could You Do It?

I’m going to pretend first of all – for the sake of this financial experiment – that I am not still living at my parents house. In my mind that is cheating when it comes to the spirit of the question. So I will for the moment assume that I had a rosy life before now, and have managed to buy myself a wonderful little apartment and have a mortgage to go with it.

That seems a little fairer.

Ground Rules

• My monthly income is calculated without any potential overtime
• Income tax remains at 20%
• V.A.T. calculated at 15%

With those rules set, half my present monthly income after tax is around about £1,000 (or $1,600 USD for my American visitors). That is a little better than some folks, and between a little and a lot worse than others.

Playing With The Numbers

Continuing the assumption that I had been financially astute in my prior years and hadn’t been taken to the cleaners by my ex wife instead, for this little paper experiment I bought a wonderful flat with a £32,000 deposit and a mortgage of £71,000 for a 70% LTV (or as our American friends would say – a little over 30% down).

• According to the Barclays Mortgage Calculator: £336.
• Gas and electricity bills are £50 each, so: £100.
• Water Rates (Supply & Drainage): £40
• Council tax on a flat with 25% single-person discount: £82.
• Landline telephone (with broadband of course) £15.
• My mobile phone bill: £20
• Groceries: £75
• Road Fund License (Tax): £14
• Car Insurance: £30
• Fuel to get to work: £120
• Car Servicing: £20
• TV License: £12
• LoveFilm Subscription: £15.65
• Blog Hosting: £12

How Did I Do?

Half of my monthly income (without figuring overtime into the equation) is £1,000.  My total outgoings in my simulation above come out at £891.65.

I can continue my standard of living without making any changes whatsoever if my income suddenly halved! This is quite a surprise actually. In fact, I could continue to save over 11% of my monthly take-home if I agreed with myself not to go out or conduct unnecessary spending.By the end of a year, excluding holidays I could actually still save £1,300.

And If It Dropped Tomorrow?

In the spirit of the question as things stand for me right now (rather than my fluffy fantasy above), could I survive?

• Rent: £120
• Mobile Phone: £20
• Mobile Broadband: £5
• Landline Telephone: £10
• Groceries: £50
• Road Fund License: £14
• Car Insurance: £30
• Fuel: £120
• Car Servicing: £20
• LoveFilm: £15.65
• Blog Hosting: £12
• Credit Card Payment: £120
• Loan Payment: £413

Total monthly expenditure would equate tomorrow as £949.65. Still just under half my income, but a little tighter. My savings goal would struggle. This would leave me with 4.9% of my pay left to save, totaling just £604 for the year.

What Did I Learn

Every exercise you do, try and take something away from it. I have learned that I am pretty frugal already. I don’t spend excessively, and I even upped my normal food spending in the fantasy exercise to make it a fair fight. £50 a month on food is very low statistically. As Trent realised – if you can live on half your income, why aren’t you doing so now and saving or investing the other half? What unnecessary money drains are you entertaining?

Could you live on half your income? Would you need to make any changes?

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