Frugal Dad wrote a post the other day about doing Financial Fire Drills. Essentially, he said that periodically you should pretend like you’ve had an emergency and see how long you’d be able to last without income. He actually brings up some excellent points about the added costs of unemployment such as higher insurance premiums. In my case, I’d need a car and a phone too.
As I read the article, I realized that I already performed financial fire drills on a regular basis. You see my husband and I work for the same company and due to the nature of our business, layoffs are quite common. About every 18 months or so, the rumor mill would start churning and a layoff would soon follow. This would prompt a mini fire drill. I would also clamp down on spending for the 3 or 4 months before the event actually happened. The last go around however, I was having a baby and our kitchen was completely gutted and so were 2 rooms in my mom’s house. Layoffs actually happened while I was still in the hospital. This time around, I wasn’t quite as prepared.
Both of our teams got hit very very hard, but I’m thankful everyday that we didn’t have to go through the transition of uprooting our family and finding another place to live and work. Plus, we both liked our jobs. This, however, scared the crap out of me and I went into debt paying overdrive after that. Yeah, I paid extra on my mortgage, but I was spending way more money on remodeling than I was on paying down debt. I went on a classic spending diet. I budgeted more rigorously, I started reading Frugal Dad and a few other finance sites, I sold over $2000 of stuff on craig’s list and funneled all the extra funds to our friends at Wells Fargo. We made a huge dent in our debt pile as a result. We made more progress in a year than we had in the last 5.
Is Pessimism good for Finances?
If I were an optimist, I’d say that if I were laid off, I’d get severance pay plus unemployment benefits. I would tell myself that this is plenty of time to find another job and not have to tap into our savings. I’d also say that the likelihood of us both being laid off is low.
But I’m a pessimist. I always hope for the best, but plan for the worst. I don’t ever consider future potential earnings in my plans. One of us could get sick or hit by a bus or handicapped and that plan goes out the window. I have loads and loads of life and disability insurance because both of our dads died young and the dark side of my brain says we have a 50% chance of living beyond our 50’s.
Although I’m generally a happy person, I’m always trying to plan for the worst case scenario. Perhaps it’s my life experience that drives my behavior. Maybe it’s because I’ve experienced lean times already that I want to ensure that I don’t go back there ever again. What do you think, is it perspective that drives people’s financial actions, or is it optimism/pessimism? Since I know of other people who are responsible with money that didn’t come from humble upbringings, I think that attitude has to be a playing a role somewhere. I’m not 100% confident in this theory, so I would love your thoughts.
So, I’d like to take a quick poll. Are you a financial optimist or pessimist? Do you have more confidence in your future self than I do? Do you think being a little pessimistic makes it easier to contribute to the 401K or emergency fund?
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