Financial Freedom Is About Resilience to Outside Shocks

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I found myself thinking a lot today about General Motors announcing layoffs for over 14,000 employees – 6,000 hourly and 8,000 salaried workers. This affected the factory workers making the cars, engineers designing the cars, managers, and executives. I know one of those workers.

When you talk about the pursuit of financial freedom, often you may have a vision of sunny beaches and European cruises. Younger folks may be thinking instead about a cross-country RV trip with the entire family or spending a year hiking across Southeast Asia.

But instead of being aspirational, I have to admit that my pursuit started with a basis in fear. I am afraid of being broke, bankrupt, or having to beg someone else for help. I hate, hate, hate not being control. Most households do not have the ability to withstand a few months of unemployment without major disruption. I can’t stand that feeling of vulnerability.


Financial freedom is not a black and white thing. It is a gradual process of increasing your resilience to things outside your control.

  • Once you save up $500, you can withstand a car breakdown or a broken appliance. You don’t pay for your rent in weekly increments. You can pay for minor things without starting a cycle of debt that eventually spins out of control.
  • Once you have a couple of months of expenses saved up, you can withstand a decent-sized medical bill or a series of bad luck that would otherwise send you into high-interest debt.
  • Once you have a year of expenses saved up, you can withstand a layoff and short-term unemployment. You have the ability to move to a better geographic location to pursue better opportunities. You have options. You are not stuck.
  • Once you have a few years of expenses saved up, you can withstand a layoff and longer-term unemployment. You can train yourself for something different, something better, something more aligned with your values. With or without a primary job, you can take some risks, perhaps start a new business venture.
  • Once you have more than 10 years of expenses saved up, honestly, you have more money saved up than most people ever will at any age. If you reach this point, you probably have a system in place where it is likely just a matter of time until your investments grow that amount ever higher.

GM says they are trying to save money while times are good. Individual workers may need to have the same idea. From the Reuters article Money disasters can derail retirement:

Contrary to popular retirement saving strategies that are based on the assumption that procrastination is the root of the problem, the Rand researchers think there should be more focus on the probability of money disasters, which are much more common than most people assume. That scare would get people to focus on saving more during good times.

Many of my friends are that mix of skilled and lucky that the last time they involuntarily ended their job, they quickly found another job that paid even more. Maybe you’re one of those people too. But in the next big recession, which may or may not arrive soon, things might not be so easy.

Karyn Golden’s income was approaching $200,000 as she lived a carefree single existence at the peak of her career in Chicago, 20 years ago. She brokered real estate deals, served on boards and lunched with political leaders. She never imagined she would be where she is now – 70 and down to her last $200 in savings.



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Comments

  1. I got laid off at the end of October so this “full employment” I keep hearing about is a myth. Thank God I’ve got an emergency fund and unemployment. So far, after nearly a month, all I’ve had is 1 phone interview.

    • Keep your chin up! I was laid off last year at the beginning of December and let myself wallow for a month through the holidays. Once I flipped the script and started blasting emails/applications/interviews left and right, I landed a job end of January (or approximately 7 weeks since being let go).

      Don’t forget your own individual network, which beyond friends can include schools etc (the school network is how I ultimately landed my job). It feels like you are doing a lot in submitting online applications, but it is difficult to stand out in that environment.

    • Sorry to hear, that sounds rough. I think digging around the personal network route is a good tip from MT – it’s not a pure meritocracy out there for sure. Friends of friends can help.

  2. Immediate gratification is what prevents people from having an emergency fund or a successful retirement. If you compute the present value of your cell phone and its plan, you would see that it is likely costing your more than $20,000 in immediate cash-out. The financing plan or lease on your vehicle is making that form of transportation close to double over its initial purchase price. Those expensive added-on marked up features…no one wants just a heater and radio anymore. Again, do a present value analysis of those payments to find out what a car really costs. Most dealers will only tell you the monthly charge. As a result, even those with mid, six-figure salaries do not have any money to spare. Immediate gratification means you work for the bank. Have a happy life doing it.

  3. Jonathan,

    What type of skills do you personally see & helped your friends be employed ?

  4. The Frugal Millionaire says:

    Jonathan, I have been a long time follower and this is by far the most powerful and well-written column I have ever seen from you. It should be required reading for every high school student in America.
    I have every sympathy for those who posted comments who are having employment problems. Without ignoring their difficulties I would like to elaborate on my feelings regarding this column.
    Jonathan, my quest for financial freedom started in college. I always “hustled” (in a good way!), working as many as three part time jobs while being a full time student, all with the goal of getting my own apartment, which I did at 19. A sports related knee injury led to a few workless, paycheck-less weeks, and before I knew it I was paying my rent with credit card bank drafts. As things spiraled, I decided to sell the few small assets I had…a collection of silver dollars my grandfather had given me, and my father’s comic book collection from the 1950’s. (This was in 1979). Well sir, the dealers saw me coming, and I had to settle for literally pennies on the dollar.
    I NEVER FELT SO VULNERABLE IN MY LIFE…THEY WERE THE PREDATORS AND I WAS THE PREY.
    I vowed that would never ever happen to me again. Fear? Yeah, I get it. Helplessness, you bet. Also, a healthy dose of anger.
    Once I graduated and became gainfully employed I read everything I could find on personal finance, even developed a few “budget systems” of my own that allowed me to start building “the moat.”
    I am 60 now, and have been blissfully retired for eight years in spite of a divorce, and a salary that was solid middle class, never hit six figures. It worked.
    A few random closing thoughts for anyone that has read thus far: my dad had a “job for life” in the 1960’s with the railroad. That is, until the Penn Central went bankrupt. My wife designed medical textbooks. Until it became computerized and outsourced to Thailand. Me, I had a union job for life at a major newspaper…until the Internet came along and took our readers and advertisers.
    Even if you never get laid off and are in a great industry, you could be in a car accident, have health issues, etc., etc.
    The day you get hired at a new job is the day you should start working on “Plan B”.
    Live below your means and keep reading blogs like this for advice.

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