Today’s post is a reader case study, this time from a reader in the U.S. midwest. This individual writes to me because he’s found himself in a bit of a pickle….a financial pickle. He recently lost his job at a large company, and has little in the way of savings. For the sake of anonymity, we’ll call him … Mr. Pickle.
And so begins our tale…
A Financial Pickle
In the past, Mr. Pickle has worked in the public school system. He was a teacher of both Spanish and Music. At his most recent position, Mr. Pickle was a web developer at a large Fortune 500 company.
…until he was laid off a few weeks ago.
I am 38, unmarried, and have no children. I live on my own, and I’m involved as a volunteer in my local community center (play piano there for the seniors). My siblings (brother and sister + spouses) all live nearby. Things are not terrible for me, but I am concerned about my next steps.
To be transparent, I am very worried that I will probably never be able to earn enough to ‘catch up’ on my savings and retirement. I really didn’t even think about retirement until the recession hit in 2008.
Basically, I would say that “it’s never too late” to start saving and getting yourself on a solid financial footing. Hard work, and frugality can get you a long ways in a short amount of time.
But how difficult a financial situation are we looking at here?
Mr. Pickle provides the following financial details:
- Savings: $6000.
- 401K: $3000.
- Income: zero
- One car: paid off
- Renting a two bedroom apartment: $550 / month.
- Student Loan debt: $25,000 remaining (bachelor’s degree)
- Other investments: zero
- Bachelor’s Degree in Spanish / Music / Teaching
- Master’s Degree in Digital Communication
Yikes! Despite being at the hearty age of 38, Mr. Pickle has few real assets to speak of.
He has no income, and $25k in student debt to pay off. He’s got a serious financial emergency.
His job-loss is also adding to his stress, because of the location where he resides. Mr. Pickle writes:
The layoffs came through a few weeks ago, and I live in a medium sized town. Lots of people from my former employer are being laid-off locally. Many laid-off friends are now co-competing for the same jobs at other local companies since opportunities in my field (web development) are limited here.
Oh boy, that DOES sound like a complication! He’s described a location with LIMITED demand for web developers and EXCESS supply. Local companies will know about this situation, and give prospective job seekers low-ball offers.
This doesn’t bode well for someone looking to get caught up on retirement savings.
The Good News
While it might sound rather depressing, there is good news to this situation. There is plenty of time left to execute an escape plan! I was once in a very similar situation myself, and I had far more debt. It ended up changing my life and my outlook on all things financial.
So there is definitely a way out. If Mr. Pickle uses this opportunity to change his life, the results could be astounding.
What should Mr. Pickle change? Well, I’ve got a few suggestions….
Suggestion #1: Cut costs
One of my biggest concerns is Mr. Pickle’s small financial buffer. With only $6k in savings, that will last only about 6 months at a normal rate of spending.
Now, I know what looking for jobs in smaller towns is like. It can take a lot of time. Opportunities are limited, as are salaries. It could take longer than 6 months to find a new job.
If we ignore his age for a moment, Mr. Pickle looks like an individual just at the start of his Road to Financial Independence. Saving money is the most important thing he can do at this point. He needs to start living like a poor college student again, while he job hunts.
Costs should be cut to-the-bone right away.
This might be a challenge for Mr. Pickle — He’s worked at salaried positions over the years, but hasn’t been able to save much. His spending patterns have been in place for years. Habits can be difficult to change, but they NEED to change.
Get serious about cutting costs Mr. Pickle. Do whatever it takes.
Eat rice and beans instead of eating-out. Cancel the data-plan on the cell phone. Cancel the cable. Cancel the fun. Fun and luxury need to take a time-out for awhile.
Instead of living like a king in a two bedroom apartment, Mr. Pickle could take on a roommate. Or, alternately, find a smaller apartment or possibly move-in with family to cut costs.
Yes, it might take some “pride-swallowing” to do these things, but getting onto a solid financial footing needs to be the priority, not pride.
Suggestion #2: Move
If Mr. Pickle wants to get caught up on retirement savings, improving earning power is paramount. Moving is probably the best way to do that.
Being a web developer in a small midwestern town isn’t an easy situation. Expenses are low in the midwest, but so is the pay.
Most firms who need web developers are located in larger cities on the East or West coasts. That’s where most of the work is going to be, and the highest salaries.
If Mr. Pickle moves East (or West) to find work, his expenses will definitely grow — but so will his salary. This gives him the potential to quickly improve his financial situation. If he can save 50% (or more) of a higher salary, his financial situation can be vastly different in just one short decade.
A web developer with previous experience (at a Fortune 500 company) should be able to command at least $75k/year, if not significantly more (depending upon his skill-set) on the East or West coasts.
A drastic change (like moving) might be just what Mr. Pickle needs to make a big financial turnaround.
Suggestion #3: Build Multiple Streams Of Income
I can’t stress enough the potential value of multiple streams of income. Many of the usual income streams, like stocks dividends, interest, and real estate won’t be an option for Mr. Pickle. With only $6,000 in the bank, he has no capital. He’s going to have to build a little sweat equity instead.
This means side hustles. Use those off-hours to earn additional income! With a little luck, this could have a huge impact on Mr. Pickle’s finances, and help bridge the financial gap (aka get caught back up).
If it were me, I would put the volunteering efforts on-hold for a few years, and develop side hustles instead.
Fortunately for Mr. Pickle, his varied background provides a lot of opportunities for side-hustles: He could tutor spanish, or teach english to spanish speakers. He could give piano lessons, or even substitute teach at public schools.
As a web developer, there’s plenty of opportunities to do freelance web development online. While the pay won’t be very fantastic, he can at least keep his skills sharp while job hunting.
Once Mr. Pickle starts to build up some real capital, he can then look into other passive income streams, like stocks or real estate, to supplement his sweat equity.
Never stop building more streams of income Mr. Pickle. Sooner or later, all streams dry up; always have others to replace that income.
Suggestion #4: Investigate Student Debt Deferment
It’s been a long time since I’ve had any student debt, but from my earlier days I remember an option to defer student debt payments.
The option is for folks like Mr. Pickle — those with significant student debt, and no current income. Student loan deferral could be an option to avoid personal bankruptcy and default.
While this option is worth checking out, it does have its dangers. Depending upon the loan, deferred loans still accrue interest, but don’t require principal payments. If possible, I would avoid deferment as long as I could.
However, if the situation gets to the point where not paying on the student loans means paying rent or eating, I would probably defer payment at that point.
While I definitely feel for Mr. Pickle’s situation, it is one of his own devising.
Mr. Pickle never had a high salary by ‘big city’ standards, but he should have had more than enough cash flow to live frugally and save plenty. It appears that hasn’t happened. So, I think a little “tough-love” is in order.
He’s in a pretty serious situation. Unless Mr. Pickle changes his relationship with money, I can only see this pattern of living continuing.
It won’t be easy. Change is always uncomfortable. It won’t be a lot of fun in the short term, but the future can most definitely hold brighter days.
Any reader suggestions that might help Mr. Pickle?