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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At my place of employment yesterday, an email was sent round to everyone. It was from the head-honcho, the big cheese, the chief, warning everyone that we face a £35 million shortfall over the next 5 years and  spending, recruitment and employment would need to be cut as a result. Obviously non-pay budgets would be the first under review but “all options” remain open in terms of balancing the books.

It was a shock, but perhaps, not entirely unexpected. The entire world is feeling the pinch right now and the UK perhaps more than most given we’re the 4th 3rd most indebted country on the entire planet. Now, it’s extremely early days, and on the face of it I am in one of the more safer areas of our business. But that doesn’t mean I am taking my employment for granted and it doesn’t mean I am not at risk.

I have been given up to 5 years to plan for the worst. So what am I doing with that information?

I am doubling my efforts to repay my debts by the new year. If I (or you) are made redundant, then having debt hanging around will make life twice as hard. With no income, how will monthly commitments be met? Credit cards, store cards, loans, car payments and all other kinds of unsecured lending create a need to earn a minimum amount to meet these obligations month in, month out, before you even look at ‘living’. Reducing these to nil removes that worry entirely. Instead of needing to take home ‘at least’ £1,500 to live and meet your creditors demands, you could potentially look to take home just £500 by part-time means. This keeps your future employment window open far, far wider.

Take all the overtime that comes. Right now where I work overtime is everywhere you look. Courtesy of my debt freedom goal, I have been working overtime fairly regularly anyway and had planned to do so until December (my planned debt-freedom month). But now I will take every morsel that comes, and continue to take every morsel that comes until either the threat of redundancy goes away (perhaps in as much as 5 years time), or I am made redundant. Whichever occurs, I will be much better off financially for it. Realistically it’ll take a physical and emotional toll on me, but to know it means an enhanced degree of financial freedom makes that worthwhile.

Create and maintain an emergency fund. Various financial blogs extol the virtues of having a fund you can reach quickly, with a reasonable sum contained within it. For me, my emergency fund might look to be just £1,000 initially as right now, I don’t have one at all. Every piece of money I have is earmarked for a purpose. If my car blows up tomorrow, I need to have the ability to fix or replace it without opening a new debt. Emergency funds should not be tied up in ‘term’ accounts, it should be available immediately so don’t think of it as an investment product but more of a safety net. Don’t rely on your credit cards for your emergency fund either: If your emergency is redundancy, how do you propose to repay those cards after you use them? When able, an emergency fund should contain 6-10 months of what you’d need to sustain your household if money suddenly stopped coming in.

Put together a SCRAM file. In nuclear power stations, a SCRAM button is used to prevent a nuclear meltdown in the event that normal control of the reactor is lost. It pushes the control rods deep into the reactor, effectively stopping the reactor from working. The power station shuts down, and everyone lives to go home to their families. We all have a lot of things that come out of our bank accounts on a regular basis; Magazine subscriptions, mobile telephone contracts, entertainment packages (LoveFilm/Netflix for example) and other unnecessary expenditure. If you suddenly lose your job, you need to hit your own SCRAM button to stop these in their tracks or as quickly as possible. Put together a document that details what comes out, when, for how much, and who you need to contact or what you need to do to stop them. This one sheet of paper can very quickly cut your monthly outgoings to the absolute bear minimum with the option of picking them up again when your financial position improves.

Keep smiling. While it isn’t a pleasant prospect to have uncertain employment ahead of me for a while, I am in a better position that vast swathes of my colleagues. I do not have a mortgage (yet. One day.). My outgoings are cut back to their reasonable minimums already courtesy of my debt freedom goal. I will not have debt in a few months time and I am young enough but experienced enough to either be kept on, or hopefully find gainful employment not too long after disaster if it strikes.

The important thing is to plan. Without a plan, when your own recession bites, the entire situation will seem insurmountable when it doesn’t have to be that way.

Where to find extra help - the government as part of their eGovernment service provides a “Real Help Now” service packed with advice on the benefits and entitlements for those made redundant and the first steps you need to take. You can get started by clicking here.

How are you keeping your financial head? Share your plan in the comments.

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