My friend, Bronwyn, works for a listed company. I have known Bronny for fifteen years now, and she’s a mercurial dynamo not given to worry. Stuff always works out for her.
Until now. That listed company is in trouble. Revenues for the immediate past quarter are down by a quarter. Margins are tiny. Staff reductions are a weekly event. Competition is savage.
Noticing the shrinking office population and awful financials, Bronny is quite reasonably scrambling to figure out her future. This is not like her at all. Talking to her on the phone last night, she’s stressed, looking to change a lot of her priorities. For the last three years she’s been on a steadily rising income and responsibility gradient. Her annual salary is within a few dollars of $100,000 plus plus. And yet the prospect of being turfed out on the street is closer than she ever imagined: she has no buffer.
By buffer I mean savings, no padding for the unexpected. But that’s not all. She has no back-up plan, no alternative means of finding income, not really any assets to sell. She is bright, attractive, flexible and hard-working, but the real possibility is that she’ll be forced back to hourly pay. What happened?
In my opinion, human nature happened. When the going’s good, it’s natural to think that the current circumstance will continue. That’s a recency bias in our thinking, the belief that the immediate past is more valid than the more distant past.
We talk about stuff like passive income, savings, being on a budget, and she did even pay a budget advisor for a while. Tellingly, he was the first to point out that her spending exceeded her income, and that the slack was on Visa. Discipline took over for a while, but with the next pay raise, her spending resumed and the budget fell behind a drawer somewhere.
The truth is that a job is not a cure for financial ills. A job is merely a tactic, but it’s a tactic in which we do not control much. A job is outsourcing your power. And that’s fine, and works for most people. But there is much we can do to balance that lack of control. Spending discipline is one thing – Bronwyn’s coffee bill, we once figured, amounted to $4,000 per year. Another is the idea of creating your own job, if only part-time. A few hours each week spent on moneymaking projects gets you in the mindset to be your own boss.
Minor entrepreneurship is a form of vaccination. Once you have the antibodies, activating them when you need them is infinitely easier. If Bronny had a side business, no matter how small, she’d be focused on how to ramp that into a full-time gig. That would give her a measure of calm, and, importantly, insurance against her both being fired and subsequently not finding another job.
I like that concept. You cannot buy insurance against job loss. But job-loss will likely be the biggest financial catastrophe to hit most people. Hence the value of providing yourself with a job, or, better still, passive income. That’s real insurance.