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Before Retrenchment: Be very aware of a Normal and Contingency Personal Cash Flow

I would think that times currently is good, where the overall employment rate is very high. To top that, rules are in place to make it not as easy to hire foreign labour. That is why I am surprised to hear from a friend that his friend in a foreign bank here has been retrench. The research done for banking back office is that landing a job now is not easy. That surprised me because the young bank sector folks seem to be very portable, leaving every one or two years.

The retrenchment amount should enable my friend’s friend to tied over the period, and its good that the retrenchment benefits calculates a full month instead of half a month, which is getting more prevalent.

The first thing that goes to your head after the anger or denial is perhaps landing another job. What creates fear is how long can a family last without his or her job.

In our day job, whether it is IT, Banking, or Strategic planning, we are forced to plan for risk management, to think of contingency scenarios, and to plan for what to do in those situation.

Do you wait for your mission critical servers to fail before you panicked and think of what you must do? You plan that your servers WILL fail, and in the event of failure what are the list of things to do to successfully tide through this scenario.

When it comes to losing jobs, which can be quite common, a lot of the fear can be alleviated by making sense of it prior to such an event.

Emergency Fund

In this time and age, still not many know the term emergency fund, and thus they have not compartmentalize in your head, how much can I tap for how long before the family run’s dry?  You can read my comprehensive emergency fund guide here.

Stepping down to your Contingency Cash Flow

The biggest mistake of many in this scenario is that they did not step down their expenses fast enough and still live like when they are employed. Most also are not even aware of where their take home pay usually go to!

I have this to say:

Budgeting or expense tracking is not mandatory, but you HAVE to know where your Cash Flow is going. If you do not know your Cash Flow during normal times, how do you step down in the first place?
Plan 2 sets of cash flow and review them periodically: a normal cash flow when times are ok, and a contingency cash flow when you lose your job.

I created a Personal Cash Flow statement for folks who have friends in the same situation, or for folks who wants to start making sense of their cash flow. You can view it here and make a copy of it.

The inflows are the cash that you will received for the month. If you repeatedly received dividend income, child support from your husband, support from your parents, do put them in.

In the fixed outflows, you reflect upon what are the payments that you have to fork out, regardless of your situation. Much of these are recurring payments.

In the outflows, there are 2 columns, one normal and one contingency. This is where you can reflect, in the case where you lose your job, what can I cut immediately.

You will realize in this example not much! which is why it is important to be very critical on expenses which are fixed outflows.

The variable outflows are a section of expenses that will change from time to time, often based on consumption.

Often this is the area where you can cut down.  Your parent’s support may have to cut down. So are your medical supplementation. House hold maintenance have to reduce even if things are spoil.

Your situation is not very good, you have to be a bit critical here.

The end result is that you get an aggregation of your Inflows, your Total Outflows and how much funds you have left over. This funds can be used for wealth building or saving, although, my recommendation is for you to pay yourself first instead of build wealth with what is left over.

You will also be able to see how much you need to operate minimally for survival, that is your total contingency out flow.

Knowing this 2 sums is good in a planning way in that, you will also know the amount your Wealth Machine need to generate per month to reach Financial Independence ($2,200 normally) and Financial Security ($1,345 for basic sustenance)

Building up your network

The fastest way to find jobs is to make sure that you have a network of friends that you can ask for help. Also do leave on good terms with your companies, you do not know when you will need them again.

Always think: have I been a good producer that my ex-boss hire me back?

To get started with dividend investing, start by bookmarking my Dividend Stock Tracker which shows the prevailing yields of blue chip dividend stocks, utilities, REITs updated nightly.
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