Ripples from the Great Recession – ten years later
October 1, 2018
I’ve been thinking about this a lot. Obviously. Even as I gear up for the next recession, whenever that may be, it’s obvious how heavily my thoughts and feelings on our financial security are influenced by the last one. Sometimes I’m levelheaded about it and make action plans. Sometimes I’m weighed down by anxiety and worries.
The first question is always: are we over-committed financially? If we aren’t, then it shouldn’t be a problem, right? We’d just tighten our belts for a while and ride it out with our cash in hand.
Answer: not with two jobs. Also true: to my disaster brain this means yes, we are over-committed. We should be able to handle all our expenses on one income. That’s one area I’m extremely sensitive to – this mortgage really messes with our financial position. I’ve reduced it by nearly 1/3 and recast so that our monthly commitment is several hundred dollars less but it’s still not anywhere in the neighborhood of low and low is what we’d need for me to feel like we weren’t over-committed. Mortgage aside, having children is a serious financial commitment between basic childcare and saving for college for them. If we wanted to add to our family, that’s a huge expense we’d be adding and I hate that we have to look first at the price tag and second at the joy (and pain) of having children.
The second question is: are we prepared for expensive life events and emergencies? In my previous experience, one spot of bad luck is absolutely manageable. We’ve absolutely got that covered. My previous experience also says that bad luck doesn’t tend to happen in ones, they tend to be a streak. I’ve planned just fine for a limited series of bad luck but not beyond more crap than two job losses. Compound that and we won’t be able to hold out as long as I projected. So that’s another sensitive area these fears keep prodding with a sharp stick. See, that’s what fed my cash hoarding. This fear that says putting lots of cash into the stock market now “right before” (except hah, who knows when “right before”really is) a market correction or crash makes us vulnerable to financial ruin and that cash hoarding will fend off financial ruin.
Why so serious?
I was starting to embrace letting that fear and cash hoarding go but my joy was short lived. Shortly after that post went live several weeks ago, we had a series of bad news from PiC’s work that we can’t share yet because we’re still waiting for the sixth shoe to drop. Suffice it to say, that triggered this landslide of worries.
As usual / expected, it wasn’t just one bit of bad news and therefore a hiccup. It was several things in a row and we still don’t know what’s next. I’ve also been doing my best to support some long distance friends through their own job losses and rocky relationship troubles. All told, there’s been a lot of worrying going around.
As if that wasn’t enough, I’ve just had some bad news from my workplace as well. We’re still processing both sets of bad news.
Getting that positivity and hopefulness back is going to take some doing.
Recurring worries
Job loss dominoes
- Domino 1 – We lose a job. The worst one to lose first is the job with benefits, right on the cusp of or in the middle of the recession, leaving us either unprotected or paying through the nose for COBRA and porting PiC’s life insurance plan which would quickly eat up our emergency fund. We also lose daycare which then affects our ability to find another job or work the existing job.
- Domino 2 – The stress of one lost job leads to either health breaking down or the loss of the other job. Or the remaining company takes a hit in the downturn too which leads to job loss or downscaling. Bad for obvious reasons.
- Domino 3 – Job loss stinks in a normal economy but in a downturn, it’s much harder to land a job when you’re vying against tons of other candidates. I know this, I remember this. I’m an excellent candidate and even still it took nearly a year to find another job.
Side jobs and side money are harder to generate in downturns when many people are hurting too much to cover their basic needs so I don’t love the generic “get a side hustle” recommendation that often pops up here. Doesn’t mean I won’t still do it, I will! But it’s not reliable.
Real Estate dominoes
- Domino 1 – Our renters will lose their job.
- Domino 2 – After a period of non-payment we evict or lose the renters.
- Domino 3 – The mortgage and those costs will eat into our emergency funds. This one makes me want to sell now and wash my hands of the risk entirely because if we do hit a series of months without a tenant, the economy won’t be in a good place for us to sell.
I hate the idea of selling any assets during a downturn because more than likely they will have lost value.
The curve ball: health
In fairness, there is a sense of urgency about preparing our finances for an early retirement that is legitimately threatened by a severe downturn: my health isn’t getting any better and the trajectory points to being lucky if I’m still mobile at 50. At best I can hope for some plateaus in the progression of whatever’s going on.
We need these next ten years to earn income and grow our invested assets to the point of financial independence if I’m going to enjoy any time with my family that isn’t dominated by time to work or an inability to physically function. And even at that pace, I may run out of time. So the anxiety isn’t all battle scars. It’s a worry for our hoped-for future as well. But there’s no way we’d get through the next ten years without any downturns and worry is the opposite of helpful when it comes to my health so I need to find my way to having faith that we will figure it out in time.
PERSPECTIVE
Tenacious J made a really good point when we discussed my general worries – 2008 was an unusually bad crash. That’s why it was called the Great Recession and not “your regularly scheduled recession.” That perspective is helpful.
What’s also helpful is repeatedly reviewing our reasonably healthy emergency fund. August 2008: I had less than $20,000 in cash savings to my name with a sprinkling of change in investments and my office shut down a few months after that (BLEAK). Today we have a full year of cash savings and our retirement funds are not shabby. They’re not where I need them to be but it’s not terrible.
The fact that we are not a highly dysfunctional super wasteful family means we are better equipped to weather some rough times. We’re not going to pull a #5 here and look at debt as free money. We have some agency in making decisions. We are beyond privileged to have no student loans weighing us down in addition to this mortgage. I paid my way through state school, he was provided for. We are saving a fair bit of money to ensure that we can pass this privilege on to JB when the time comes. I might adjust our strategy but we do already have a good chunk of savings set aside to grow over the next 15 years.
Also I’m not your local Pollyanna, but during these months dwelling too much on the bad stuff, something else floated to the surface. Despite the stress and worry, we did come a long way in the black and we DO have a good outline of a plan. So when the POPs asked about what we were doing ten years ago, I tried to balance my bad memories with the good: I was able to spend time with friends on the East Coast. It’s really tough for us to get out there when things are all fine and ticking along – we’re too busy to coordinate. When we had a huge unexpected loss in the family, I was able to spend weeks with the grieving family. I still spent quality time with PiC growing our relationship.
Pep talks aren’t going to shake the scars of those years and the effects they’ve had on many of my cohort but I can do my best to therapy myself out of the anxiety that still dogs my steps. Also, perhaps it’s time to concretely identify the costs we would cut because right now they all feel fixed and scary next to the prospect of lost income.
:: Do you have a different perspective on inevitable downturns and how you’re positioned?
I don’t feel 100%, but I am mostly confident we can weather a recession. Unlemployment would cover us for 9 months and we have another 9-12 months of case savings after that. Then we have another 6 months in our brokerage even if the market halves. That gives us at least two years before we’d have to sell the house, dip into retirement, etc. If we cut expenses, which we would probably have to, we can probably stretch it out a little longer too.
Is this the rental you’ve had for a long time? Is there a reason you’ve kept it vs cashing out the appreciation and consolidating real estate risk?
That’s a good point about unemployment, I completely ignore it because I always feel like it’s completely uncertain but I suppose it’s also possible that I worry about being too optimistic and getting let down.
Yes, this is the same rental, the first of what was meant to be many rentals but I just haven’t seen any good enough deals to commit to since buying this one. It was part of a long term plan to spread out risk but it turns out that my stomach for risk is still weak š Never mind though, I should just factor in the costs of the rental into our emergency plan and then feel better knowing we can cover it for X months.
I’m nervous too, but I think that it will all work out somehow. That’s just personal bias. Things worked out in the past for me so I think it’ll work out in the future. You have the same bias too. You had a tough time 10 years ago and you’re overcompensating. I don’t know it the next recession will be that bad, but it’s always good to be prepared.
I think we’ll be okay, but we have a lot of wiggle room and can make drastic changes. We could go live in Thailand until the recession blows over if it all went to hell.
Most people don’t have that option and will have to ride it out in the US.
Hah at least you know it’s a bias š I know mine is too but I tend to be pessimistic in general over money matters because the consequences of being optimistic incorrectly feel a lot worse.
I think K and I are well-positioned to come through a recession, even a 2008-like one, alright. In the biglaw-ish sector, the people that got it the worst (in terms of serious setbacks to career progression or the possibility of ever getting into biglaw) were the most junior attorneys, or actually, the people who had just started school when the recession hit. We’ve built enough seniority and experience that short-term career setbacks shouldn’t be too damaging in the long term. We’re also both in practice groups that are somewhat “counter-cyclical” or “recession proof” – things like bankruptcy or government investigations don’t necessarily go down when the economy is bad, and that helps. Also, we’ve both saved relatively large cushions of cash, he’s done with his student loans, and I’m making good progress on my loans, and that helps relieve a lot of the potential pressure.
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Oh that’s a great point – it was much worse for new grads back then. I was lucky that I’d gotten a year of work under my belt before being tested with that long stint of unemployment. How great it must feel to have at least one set of your student loans shelved.
Hi Revanche – thanks for sharing your perspective – I do think with two jobs and a year of expenses in an emergency fund you will be able to weather most storms.
What I am realising is that we all have very different perspectives on this.
I’m weird as I don’t really worry about this sort of thing – both as I am very comfortable now and I am very adaptable job wise – helps that I’m single and can move if need be. It’s also probably due to living in a country with a bigger safety net and free healthcare – theses will never be a worry.
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So much affects how we see this: our personal experiences, our chosen careers and how well (or not) they pay, the flexibility of our industries, whether our jobs are counter-cyclical, etc.
Having more flexibility as a single person who can move AND having free healthcare are two such huge advantages, to my mind.
I still carry my scars from the last recession, but I feel like that’s exactly how I’ve ended up in the PF/FIRE community. I had a burglary, my home lost 75% of it’s value, I lost my job, I moved back in with mom and dad to be able to find an $11/hr job just to keep the mortgage current. I ditched the student loans, paid off my most recent used car purchase in just a couple months, and save/invest over 60% of my after-tax dollars. But I still have those worries, and feel like I’m maybe 1 step closer to the trouble as a single homeowner, in flood-prone, Hurricane-force Florida. I try not to be a worrier, but I worry.
I suppose that saying “it’s an ill wind that blows no good” applies here, doesn’t it? Lots of bad things happened to both of us but somehow they did lead us to a better path.