Fortify Yourself During Hard Times

Mark Erwin, founder of Erwin Financial in La Jolla, offers advice on the do’s and don’ts of spending money during hard times.

Please tell me a little bit about your company.

We do customized, client-focused, fee-based financial planning and money management. We mostly work with individuals and privately held businesses. We start by focusing on our clients’ values and goals, and we create a plan before we discuss products or services. We also collaborate with other advisors, such as a client’s accountant and attorney.

Have you found that in the past couple of years people have begun to question what they should or shouldn’t spend their money on?

It’s an interesting question. We’re watching the baby boomers – my generation – get closer to retirement. A lot of baby boomers never thought about budgets, but as they’re nearing the time when they’ll be spending down their assets, they’re starting to think about how much they spend. Given what’s happened in the last couple of years, they’re a lot more focused on budgeting.

Do you have a “top three” list of unnecessary things you see people spend their money on?

As part of the financial planning process, we create cash flow statements, and there’s a subheader for discretionary expenses. Some that come to mind are vacations, allowances to adult children, and charitable donations. People love to give, but giving your time is another way to do that, and it can sometimes be even more valuable to the organization you want to help.

How about a “top three” list of things that are good to spend on?

I’d say spending on family gatherings instead of big vacations is good use of funds. If someone’s out of work, going back to school is good, too, whether to get a degree or extra training. Anything that enhances one’s skills, stimulates their mind, or gets them focused on productive things. It’s also a good time to get your estate plan in order. Make sure you have a will or – if need be – a living trust. It’s important to have that because if you don’t have one, the State of California will have one for you. No one knows how long they’re going to be here.

And what about those who are unemployed? When would it be wise for them to spend? On new interview clothes? Résumé and portfolio updates?

Every individual is different. For our clients, we establish an emergency funding goal. It varies from client to client, depending on, say, whether or not a spouse is working. Or if the client is single. The rule is to have three months of savings in the bank, and depending on one’s career, it may be six months or a year. In some professions, it might be fairly easy to find work again because there’s demand and a good supply of opportunities. But for someone more specialized, it might take them a lot longer, so the emergency fund should be based on those kinds of variables.

There was a time when I was between jobs, so I know what it feels like to be out of work. You don’t feel as wanted or as needed, and you don’t feel good about yourself. While unemployed, it’s important not just to think about how you spend your money, but also how you spend your time. Get involved in organizations where you enhance your education and your skills or where you make a contribution. It’s OK to spend a little bit of money on organizations that can help you network. If you have to spend $200 on a membership, make sure you go to every event they have, and volunteer at every opportunity. You never know whom you’ll meet.

Is there anything that most job seekers think they should spend on but don’t need to?

Anything that enhances how you present yourself is positive. The key when you’re between jobs is to really review your discretionary spending. Maybe you should have coffee at home instead of at Starbucks. Or use the library instead of ordering on Amazon. Or pack a lunch instead of eating out.

Let’s say someone is currently living on savings while seeking employment. Do you have any further financial advice on how to stretch the savings?

Some little things come to mind. Look at your deductible on your insurance, and see if you can reduce the cost by raising the deductible. If you have credit card balances, try to move them to a card with zero interest for a while.

Once you’ve left a job, roll your 401(k) over into an IRA. Work with an advisor if you can. They can help you navigate these times better.

And rule number one is negotiate, negotiate, negotiate. If your bank is charging a service charge, negotiate. You might even be able to get a deal on your cable or Internet if you call and speak to your provider. The worst they can do is say no.

I’d also say keep a journal. Write down every day the things that save you money. The things you focus on, you tend to get more of. Write down the things that make you feel good and that make you feel like you’re making a contribution. And when you get a job, write down the ten most important things you learned when you were unemployed. Once you’re employed again, and you create a budget or a plan for yourself, looking back through the journal every now and again can help you stick to that plan.

Being unemployed is emotionally and spiritually challenging. Anything you can do to fortify yourself during hard times will serve you in the long run.