Take a Break wrote a great post on his worst-case scenario. With consensus opinion forming that a recession is looming, it is a useful exercise to think about how to survive a worst-case scenario:
- Is your job safe? I know that mine isn’t but my wife’s almost certainly is (she works for the Federal Government). If you were to lose your job, how long would you be able to survive before tapping into long-term savings? Don’t forget to include future income such as severance payments and Employment Insurance benefits in this calculation.
- Do you have an emergency fund? If so, how many months’ expenses can your emergency fund cover?
- Are there expenses in your household budget that you can cut? For instance, we won’t have daycare expenses if one of us isn’t working.
- Would you be able to tap into your portfolio? If things get very bad, you can always sell the bonds in the portfolio and consume dividend and interest payments instead of re-investing. Yes, that throws the asset allocation policy out of the window, but we are talking survival here.
- Would you be able to tap into your home equity? If you have a lot of equity in your primary residence, you may be able to re-mortgage your home or obtain a secured line of credit (it is best to establish one when you have a job) that you could tap into.
What is your worst-case scenario? How will you survive it?