I touched on this in my Planning for Possible Redundancy post a few days ago. One of my principles of money management is everyone should have what I call a SCRAM Plan. It’s the button you hit when the proverbial hits the fan and you need to cut your outgoings to the bare bones immediately, for example because of job loss.

Why is it called a SCRAM Plan? According to Wikipedia, “A scram or SCRAM is an emergency shutdown of a nuclear reactor – though the term has been extended to cover shutdowns of other complex operations, such as server farms and even large model railroads.” It doesn’t take much of an imagination stretch then to make it cover the shutdown of personal finance drains, too.

Know What You Owe – Before you can even begin to implement your own personal SCRAM Plan, it is hopefully obvious that you must know what you pay out in a given month. Review your direct debits, and go through your last 6 months of bank statements to find out where your routine spending occurs. If you have a budget plan, give it the once over and just make sure it’s accurate. Some of your regular outgoings will be obvious:

• Rent / Mortgage Payments
• Utility Bills (Water, Gas, Electric)
• Council Tax
• Landline Telephone
• Mobile Telephone contracts
• Broadband supplier
• Satellite / Cable TV
• Car Insurance

Some will be less obvious:

• Car tax
• Magazine subscriptions
• Gym memberships
• Web hosting provider
• LoveFilm subscription

Those are just immediate ones off the top of my head. You’ll probably surprise me with your own. If you have time, review a years worth of statements to get the full picture and make a note of every recurring payment you make, then total them up.

If you’re not surprised how much you spend a year, then congratulations. You likely already have a good hold on your finances. Chances are though, it came as a massive shock. But don’t worry, half the battle is working out where your money goes before you can begin to tackle it.

Work out how to cancel every non-essential entry on your list – this will form the basis of your SCRAM Plan. Dig out account numbers, phone numbers, subscription references and anything else you may need and write yourself a little ‘howto’ for each one. If you’re tied into a contract, note the minimum term expiry date for each. If you don’t know, find out. Be brutal, your gym membership is not essential to life, and neither is your LoveFilm subscription or monthly subscription to Nuts Magazine. Your mortgage payment is absolutely essential. Providing you have a roof over your head, food on the table and fuel to heat your home, you have covered the essentials of living. I can’t stress that enough. Be prepared to be brutal with your cuts if the worst should happen.

Keep it safe, keep it up to date – Your SCRAM Plan is no use if you can’t find it in 18 months time when you’ve just been made redundant, and it’s similarly of little use if you’ve changed mobile provider 3 times and taken out 4 other magazine subscriptions that you can’t remember the publishers of. If you use Google Mail, click the ‘Calendar’ link top left of your inbox and set yourself a recurring reminder to check it every month or two. If you’re slightly less on the technology cutting edge, write SCRAM in the margin of your diary every couple of months as a reminder instead.

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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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