Financial strategy for government workers who may lose their job

With the government budget coming up soon, all the talk during coffee brakes is about the layoffs. There is only one certainty – large number of people will lose their jobs and the sense of financial stability that comes with being employed.

If there is even a small chance of your position landing on the chopping block, consider doing something now, while you still can. Do what? You can take some preventive measures to minimize the negative effect if that actually happens to you. The following financial strategies would help you better handle the time with lower income or no income at all.

1. Check your mortgage renewal date.

Your mortgage payment is probably your biggest monthly expense. If the mortgage is up for a renewal anytime within the next three years, you may want to refinance now. By doing it now you will achieve the following benefits:

• Lock into a very low mortgage rate for the next 5 or more years and reduce your monthly liability
• You will avoid the problems associated with qualifying for a mortgage when you are unemployed or working lower paying part time job. Refinancing now would go easily, because you still have a government job.
• Even if you end up not being layoff, you will avoid renewing the mortgage at a time when rates will certainly be higher than what they are now.

2. Protect your credit history.

Being without a job for an extended period of time is perhaps the most common reason why people fall behind mortgage payments, miss credit card payments and end up on the calling list of collecting agencies. All this ruins even a perfect credit history very quickly. During unemployment it is logical to expect that you may need to use credit even more. This will increase the so called “credit utilisation ratio”, which ultimately lead to a sizable reduction of your credit score. That alone would limit your ability to borrow in the future or would make borrowing more expensive for you.

Action plan:

• Review your credit card statements and put aside those with balance over 50% of the extended credit.
• Pay as much as you can to those cards even if you have to take some money from savings. The goal is, while still with a job and regular income, to bring down the balance owing well below 50% of your credit.

3. Review your line of credit.

Your line of credit is the least expensive way to borrow money. If you are a home owner and don’t have a secured line of credit, try to get it while still working. Line of credit approval is mainly based on available equity, but, lately, income has become also an important factor. Some mortgage lenders do not offer secured line of credits. A good mortgage broker would be able to help if you are in such situation.

Action plan:

• Move most or all credit card debt to a line of credit. If debt is more than what can absorb you line of credit, then first transfer the credit card debt with the highest interest rate.

4. Review your household budget.

Don’t say you don’t have one. Sit down and create a budget today, if that’s you.

Action plan:

• Review your budget and postpone or even cancel planned big ticket item expenses like vacation, home renovations, or buying a new car.
• Try to figure out how far you can go with reduced income (from IE) without the need to change your lifestyle. Make the necessary corrections if needed – start with cutting discretionary expenses like entertainment, dinning out.
• Review your budget again in three months and adjust accordingly.

I know, some won’t like this strategy, because it requires delving deeper in financial matters and taking decisive actions. The “wait and see” approach is definitely easier. Well, it’s your choice.

Need further help? Send me an email: info@RecommendedBroker.ca