The Importance of Having a Buffer

This is a long post, so be warned.

I have kept a bit of a journal of the events of the past few months, detailing how important it is to be prepared for the unexpected. This was a very trying time for us & we have now come out the other side (I hope) unscathed, but it would have been easy to go under too.

In reading this post, I hope you will all look at your own situation & see if you could survive financially what we have just been through. I am in no way trying to brag about my abilities to keep things together, but merely trying to warn people that no matter how well prepared you think you are, you just don't know when bad things may happen.

January 2005. Hubby very dissatisfied with job. He decides to look for new employment as promotion within current company not going to happen. The old saying about making yourself irreplaceable.

April 2005. After looking at many jobs realise that he is quite well paid for the position he is in. Having some difficulty getting the desired $. Have knocked back a few that just didn’t seem right. Get accepted for a job that requires 3 months training in South Africa. Declines. Gets told by prospective employer that they have something else he would be well suited for in Australia. Declines again.

June 2005. Same employer calls him out of the blue. She has interviewed quite a few people & none of them seem to fit. Will he please re-consider. After much to-ing & fro-ing he accepts.

July 2005. At last the contracts are signed & he can give his notice. He will be working on contract, through a third party umbrella company. He must give a month’s notice & does that on the last day of the month

August 2005. He is paid monthly & receives his last pay on the 15th of the month, same as always. His new job will be paying at the end of the month so this pay needs to stretch a little longer than normal. We are also booked for 2 weeks holiday (unpaid) late September early October and that has been cleared with new employer too.

September 2005. He is due to start his new job on the 5th, but they ring up & say that the office is not ready for him. His new start date is 8th September. All is going well. He has to go to Dubbo for a day on Business just before we leave for Holidays & he pays for a few work related items on our Credit Card. She will re-imburse him later.

October 2005. We expect his first pay to go into the bank account while we are away. It doesn’t & his boss makes plausible excuses as to why not. His re-imbursement doesn’t show up either. He is due back at work on the 10th so decide to sort it all out then. This is an inconvenience but we have a buffer so all will be alright. Sort out the problems. Not all the paperwork was submitted to the agency. His boss is a bit disorganised. He gets a cheque for the amount owing on the Credit Card but I am annoyed at how long it took.

She gets the invoice on the 13th & she then tells Hubby she has 7 days to pay the invoice. OK that was in the contract, but if you have stuffed someone’s pay up I would think you would pay it straight away. 7 days later on the 20th Hubby reminds her that she has to pay the invoice, she says that’s fine. 21st ring umbrella company to see if payment has gone through. No! Hubby takes her to task & she says that she posted a cheque. He tells her that she was supposed to use EFTPOS so it could go straight through to our account & we really can’t wait for the cheque to clear. We need funds now. She tells him she will work something out. “Can I email a copy of the invoice to her?” I do with a note to Hubby saying that we were only copied onto this invoice, it has her name & email on it, so she must already have a copy. She sends in one week’s pay straight to our account.

In the mean time, since returning from Holidays, all is not good at the office. There is a cashflow problem & things are not getting paid. On more than one occasion Hubby can’t get into the building as the rent hasn’t been paid. There are also times that various other services have been withdrawn due to non payment. I am getting extremely nervous. Each day that passes I ask “When is the money coming?”

Turns up for work on Monday 24th & there is a note on his desk saying that he is not going to get paid for last Monday as he had to go to a seminar that was not applicable to this job. He did go to a seminar that had been arranged by his previous employer, but he had told her all about it & said that he wouldn’t be going unless it was something that would be useful to her. She had said to him “Yes please, go”. The note also said that nobody would get paid for next Tuesday as it was Cup Day & nobody does any work on Cup Day. He rings her up & tells her that she gave him permission for the seminar & he expects payment. She gets nasty & tells him that he certainly will not & please to tell your wife to keep her nose out of her business. Turns out that she reads all the office emails. He tells her that she was the one that involved me due to the fact that we haven’t received our first month’s wages as yet. She then tells him that she had to get someone else to check it before it was paid. This means that she didn’t send a cheque in at all. Oh, & since she did pay one week that invoice is now wrong, so she will need another one.

Hubby rings me at home & tells me what is going on & it is obvious that she will do anything to NOT pay for things. We are concerned that nearly another month has gone past without payment & will we ever get any more out of her. He doesn’t know whether to stay or go. We check his contract & it says he must give one month’s notice. He decides to stay till the end of the week but follow up as many contacts as possible to get a new job. Luckily he was so well regarded in his last job. The umbrella company in the meantime are following up all the time to try & extract payment for last month.

Tuesday 25th Hubby rings up & mentions that someone he used to work with has mentioned that they need staff. Is he interested? You bet. This is a nice corporate company that pay good wages to good staff. Only problem is they usually take 12 weeks to employ anyone. He will check it out & see if he can work on contract for the time being. It is not a sure thing, he has to have an interview with someone else first, but the fact that his contact will vouch for his abilities & work ethic will be well regarded. Same day another of his contacts comes good & mentions that there is a good position going soon. It certainly seems to be a case of its not what you know, it’s who you know. Thank goodness he knows a lot of people.

Wednesday 26th We still have not had any further funds & Hubby decides he cannot take it anymore. He gets all his timesheets signed off & asks the boss how much notice she wants. She tells him what the contract says & he says “Do you really want me to stay on for that long?” They decide to part company. He then sends in time sheets to agency to send her the end of month invoice.

To date we have only had one week’s pay since the 15th August.

November 2005. Hubby is now unemployed. What a joy that is! We had what I thought was a nice buffer, but it is going fast. Hubby has applied for a lot of jobs, but none have come good as yet. We have started legal procedings to try to re-coup what his boss owes us, but don’t hold out any great hope of anything coming from it.

Wednesday 10th. Hubby decides enough is enough! Rings up an old boss & tells him of the current situation. (He was an electrician some years ago & very well regarded for his work ethic) He needs some income now, but it is only temporary as he will be looking for a management roll again. They say “Great, you can start Monday”. This is a bandaid solution, but puts our minds at ease for the time being. They have a job on at the moment that is urgent & put him on that one. Ten hours a day, seven days a week. YUCK!!! The money is good (for a electrician) & it is only for 2 weeks, then reasonably normal hours. This means I can pay some of the mounting bills without drawing down more equity.

December 2005. Hubby is sick of being an electrician again. Applying for jobs while working is becoming a pain in the backside as he has to take a suit to work with him on the train as he is working in the CBD & shower & change at work. He gets a call from one of the recruitment places & goes for an interview on the 8th. The following week they want to see him again on the 12th. They need someone ASAP. Hubby then rings me at 1pm on Wednesday 14th “Get on the next train & bring a suit, tie, shoes toiletries etc & meet me in town”. They rang him to see him again that day. This is looking good.

On Friday he gets told the good news. Can he please start this Monday the 19th. What a great Christmas present.!!! He has to ring his boss & let them know he won’t be back, but they are fine with that. They knew from the start that he was looking for something else & wish him well. He is back to earning a decent pay packet, although it is again monthly wages & the first pay is to fall on the 15th January, so we have a few weeks more of being very careful of where the money goes.

When he gets his first pay from his new employer on the 15th of January, it will have been 5 months since he left his original employment. In that time he was paid only 1 week from the new job & 5 weeks as an electrician. A grand total of 6 weeks pay in 5 months. The wages as an electrician were considerably lower than what he was originally earning & what he is getting now. As an investor, with a reasonable size portfolio, we were not entitled to any financial help from Centrelink. How would you survive if you were put in a similar position?
 
Skater, thanks for posting this. I know quite a few of my friends are on great incomes but have very high mortgages with little (if any buffer) and were this to happen to any of them, they'd sink. Fast.

I am one of those people who always calculates things on a 'worst case scenario' because with life, you just don't know what might happen. I am one of those people who is fairly cautious financially; my husband though, is a risk-taker. Between us, though, it works well and we achieve a happy medium! :)

When something like what happened to you happens to people, things will (in most cases) eventually come good again, but if you're not prepared for that make or break period inbetween, you're in trouble.

So happy to read you managed to get through - and thanks again for posting - it's a lesson that can never be overstated.

Cheers!
 
This is an important consideration to have contingency plans.

For us, our first line of defence is that for the moment at least, we have one full time and one part time job for each of us.

The second is our cash reserve (usually very little!)

The third is usually a draw down on our margin account and/or sale of shares. This allows access to cash within 24 hours.

The fourth would possibly be a liquidation of the gold reserves.

The fifth is liquidation of managed fund assets - this usually takes a week, but can be as long as 2 months.

The last and final move would be offloading of the properties. An interesting thought just occured to me, after recently buying my PPOR for the first time - I wonder if we should off load the PPOR before the IP's? After all, if it has gone up any, it would be CGT free right? It is also the least tax effective of the lot. Mind you, trying to convince us to go through the execise of moving again.... well.....maybe not.....

I did not include loans from the Bank of Parents - this is also another possible avenue.......

Cheers,

The Y-man
 
Thank you for sharing not just your story but a great lesson.

I hope everyone takes from this the importance of cashflow and equity buffers.

I have posted a few times on this, and nowdays I always measure my buffer in terms of TIME not DOLLARS.

How LONG can I survive at zero earned income (from both working partners), with 0 income from IP's/shares (HIGHLY unlikely), with half income from IPs/shares, and with full income from both.

I also combine this with two scenarios - full costs (maintaining current relatively extravagant lifestyle), and half costs (which we can definitely do).


It is VERY reassuring to completely understand our financial position (balance sheet, P&L and 2 year cashflow projection), and exactly what sort of contingency buffer we have in place.

T.
 
glad everything is working out for you and your family Skater.

What about you IPs?
Are they all self sufficient?

Ours are but if I ever lost my job the personal expenses would still take a drain until my unemployment insurance would kick in.
 
Thanks for sharing this with us.

I thought we had a huge bumper but then the unexpected happened and in my case it was catastrophic for a few months.

I had never put myself on as a cheque signatory to husband's business account. We had been using our personal account to pay bills for the investment accounts and had let the account run down but allowed the business account to build up. Husband died suddenly and the money was stuck in the business account until probate came through. It took 5 months!!! Yes I had the rental income coming in but I had to pay over $10k for the funeral. I had immediately resigned from work so no fortnightly salary coming in. I had to resort to the Mastercard and had to hit $34k before probate finally came through.

I didn't think about putting the funeral costs through the business account, at such a time you just are not thinking!!

Once my brain cleared I worked out that I had to sell the two units that had a mortgage on them and sell the old house that was pre-cgt. I sold them in two financial years - one in June and one in July - prices for them all were good, I cleared all the debts and am now living off the rental income and have a cash investment to get me out of trouble when I need it.

Its now 9 months since Alan died and I am planning a fantastic 2006. This year has been so horrible that I reckon my son and I are OWED a great year

Happy New Year to Everyone

Chris
 
"What about you IPs?
Are they all self sufficient?

Ours are but if I ever lost my job the personal expenses would still take a drain until my unemployment insurance would kick in."


Kathryn, we actually looked a few different insurance options when we were looking at taking out income insurance, and not all provide payment in the event of losing one's job - mostly they only provide for incapacity to work through illness or injury. A lot of people don't realise this, so it pays to make sure! :)
 
here in Canada anyone who works for an employer pays into "Employment Insurance" . We just out of bad habit refer to it as unemployment insurance.If you lose your job (laid off) or quit under certain circumstances (moving etc) you qualify for benefits up to 32 weeks. Your rate is usually 55% of your wages.

Actually until you mentioned it never even thought about the private insurance.

Also , even though I don't have it, bank telemarketers are always offering credit card coverage in the event you "lose your job" Is that something Aussies are offered as well?
 
skater said:
This is a long post, so be warned.

And a good wake-up call for those caught short through no fault of their own.

How would you survive if you were put in a similar position?

1. The everyday account (for living expenses) could keep me for about 2 months.

2. So could the cash management account (only intended for IP ingoings and outgoings)

3. Borrowing the credit card up to the max is another two months (but wouldn't be done due to the interest).

4. Unused annual leave from work could keep me going for a month or so.

5. For a serious income loss after then I'd need to raid the liquid parts of the portfolio.

Assuming the IPs remain tenanted and don't require expensive repairs, this could keep me going for 3 or 4 years, though the asset allocation would be poor. With a bad tenant, some vacancies and repairs and this could drop down to 2 to 3 years.

I have not counted spare equity in IPs but assuming zero non-IP income and no evidence to service the debt, I'll assume the bank would turn down any application. I have also assumed no social security.

6. If I'm really down and out, sell the IPs (or sell all but one, pay its mortgage and move into it, so at least I have a PPOR into which I can shut myself away from the gathering wolves outside).

Add it all up and it's a bit over 10 years at current expenditure patterns and I'd be dead broke at the end :(

It drops down to a year or two if I wish to retain the portfolio substantially intact and only several weeks if I don't want to touch the portfolio at all.

Peter
 
Hi Skater.

Thanks for sharing what's obviously been a very frustrating time.

Personally, if they weren't paying me, I'd withdraw services within a few weeks - they broke the contract terms first! :mad:

It definitely underlines how important the buffer is, and no matter how tempting it is to spend it (it's just sitting there after all), it's there in case you need it. :eek:

Thanks for the timely reminder.

All the best

Simon.
 
Gee Skater and when all this stress was going on with no pay, etc you had the next door neighbour sending her kiddies over to continually borrow your stuff. You guys are very patient people!!!
 
Skater,

A suggestion, get your husband to approach your new employer to see if they will do a 'special' one off pay run for time already worked.

I have done this in the past when changing jobs and moving from weekly to monthly pay. I got this idea from when I worked in payroll a few years ago.

If you ask nicely enough they should say yes, if they say no you are in no worse a position.

I agree with you sentiments regarding the size of buffer and it is definitely something I need to work out for myself!

Regards,
A
 
sbe said:
It definitely underlines how important the buffer is, and no matter how tempting it is to spend it (it's just sitting there after all), it's there in case you need it. :eek:

Not necessarily just sitting there ;) .... for example, even if it was cash, it could in an interest bearing account or an offset account.

Cheers,

The Y-man
 
kathryn d said:
glad everything is working out for you and your family Skater.

What about you IPs?
Are they all self sufficient?

Ours are but if I ever lost my job the personal expenses would still take a drain until my unemployment insurance would kick in.
The IPs that are in our personal names ARE self sufficient. No drama there. We have quite a few in a Discretionary Trust, 4 of which we bought this year. The 4 recent ones are all -CF, which was not a problem when we bought them. In fact 2 of them settled in late August, just before all this happened.
 
chrispy said:
Its now 9 months since Alan died and I am planning a fantastic 2006. This year has been so horrible that I reckon my son and I are OWED a great year

Happy New Year to Everyone

Chris
I think so too. Best of luck for the New Year.
 
sbe said:
Hi Skater.


Personally, if they weren't paying me, I'd withdraw services within a few weeks - they broke the contract terms first! :mad:
He did. Problem was in the fact that it was monthly pay & the end of the month fell while we were away. He had to wait untill he got back to supposedly sort out the paperwork. When payment still wasn't forthcomming, he left.
 
Petal said:
Gee Skater and when all this stress was going on with no pay, etc you had the next door neighbour sending her kiddies over to continually borrow your stuff. You guys are very patient people!!!
Hey Petal, you know the saying about things coming threes. We had so much happening all at once I'm surprised I didn't end up in the loony bin. The neighbour was the least of our problems but the only one that I could rant & rave about at the time.

During all this, we ended up with a couple of major repairs on IP's that are 9 hours away from home, so couldn't do it ourselves. We did talk about going there to do it, but couldn't afford not to be here in case a job came up. The repair bill for one of them came to around $5k.

One of our children decided that during this period would be a good time to undertake their very worst in behaviour & had us quite stressed out too. She is now back to normal.
 
aef said:
Skater,

A suggestion, get your husband to approach your new employer to see if they will do a 'special' one off pay run for time already worked.

I have done this in the past when changing jobs and moving from weekly to monthly pay. I got this idea from when I worked in payroll a few years ago.
Thanks for your thoughts. We actually don't need to do this, although it will be a stretch. I would prefer to just wait as it will be 6 weeks pay. This extra 2 weeks will form the start of the next "buffer" to be put aside once more.

I am quite good at surviving on very little money if the need arises. Obviously it is not something that I like doing, but we have had our share of hard times in the past, so it is second nature for me to go into a kind of "lock-down mode" when money is scarce.
 
Thanks Skater
A very thought provoking post, it is a subject that we often intend to get around to at some time...but never do.
I have found myself, as a single parent, dead-broke on two occasions due to uncontrollable circumstances. By giving up the 'need' to have money and concentrating on the 'how' to survive it was amazing how both times money came from unexpected quarters to bale us out of trouble.
My fiance is facing retirment in 2 years (happily, I might add) but we are only just finding out how difficult it is to create an income and a buffer for that time.
We definitely need a better balanced portfolio to cover contingencies.

Chrispy, I hope the op went OK?

Cheers for the New Year all
Ponyfire
 
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