economy personal finance: middle class redundancy
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A Public Service Announcement for the Middle Class in the Public Sector who are about to lose their job
I did wonder about this post, because I am sure there will be some who will deem it to be heartless and in poor taste. If you fall into the category addressed in the title and want to hang on to your sense of entitlement then I’m afraid that I’m probably guilty as charged in your eyes, and you probably ought to stop reading. If, on the other hand, you want some things to think about that could materially improve your situation and save you charging down some blind alleys, then hear me out.
So who the hell am I and what do I know? Some background. I ran a web design firm from about 1995 (yes, that early) to 2005-ish. All on the side while still working at my main job. You see, I am a slight oddball – I craved the stability and security of regular employment, but I was intrigued and excited by being able to make stuff happen without going through all the processes you have to in a big company. Because I did it on the side, I was limited in the amount of time I had, but on the other hand it meant that when I dealt with my main customer(s) I could work with them to shape some of the requirements to the art of the possible, and it was a good match. I got to save their tail a couple of times including once when they were over-hasty with the delete key and my company was profitable every year it ran, what’s not to like?
In the end my main customer after many years decided to insource the work and I was happy to let it go, there are only so many hours in the day and as you pay your mortgage down you need less money, paradoxically at the time of your life when you are earning more. I’m not the world’s best salesman, so I enjoyed looking after that customer, but if was DGF in her guise as a former GF who won the business. She can sell things while I am left open-mouthed in amazement at “how did you get them to go along with that?” I enjoyed following up with the customer and making them feel looked after, and of course making money and at the time hacking code and databases and server backends and all that cobblers. If I’d wanted to carry on I’d have chased more sales, there were opportunities, but not enough taime.
So I am an unusual mix – a salaryman/company man according to ERE-speak and yet also entrepreneur (craftsman in ERE’s taxonomy) colonising new ground – the Web in 1995 was a very different place than it is now.
This is not a common combination. And judging from the number of CVs I received as company director and the number of company men that I see from the public sector and voluntary sector fumbling about after redundancy, I see certain mistakes repeated again and again. I list some of these traits, and my own take on them here. I really and honestly do not intend to be mean, however, I am a firm believer that if you look at the world as it is rather than how you’d like it to be you will get further, or at least expend less energy staying where you are!
Fate Helps Those that Help Themselves
Since 2007 the drumbeat has been rolling out that something Really Bad is happening to the economy. The time to start preparing for losing your job is at least two years before you do lose it. It’s 2011, that bell has been tolling for three years already. It tolls for thee. How do you help yourself?
- Cut spending
- cut debt – yes, including your mortgage. Because of the threat of redundancy seek ways to buy repayment holidays or pay an offset, or save elsewhere against not being able to pay the mortgage.
- start saving
- start looking at the jobs market
- if you want to start a business then work out what it will do and the marketplace/competition
- start learning new skills if appropriate
- eliminate frippery
- eliminate unnnecessary expenses
- don’t buy too much house
- consider renting – it is more flexible than owning if you have to move for work
- study your company and its accounts. Which areas are doing well? Is yours one of them? Is there an obvious competitor that may take your firm over, or one that your firm may take over? Without fail mergers are never good for employees.
If you know you job is under threat, Cut Spending – now
Ever wondered why finance directors of a company in trouble issue edicts to slash spending even on paperclips and travel first and start making people redundant even if it seriously hits business?
It’s because any entity under financial pressure can improve its situation at a stroke by reducing spending. The other side of the coin, increasing income, takes time and effort to come through, so if you are hit by a financial shock cutting spending gets you results, fast. No newspapers, no Starbucks lattes, cancel the Sky TV, take down all nonessential spending. You can ease back on that once you’ve digested the shock and what it means for your finances later.
Self Employment is not an easy alternative to Employment
If you have the Entrepreneur’s itch you wouldn’t have been in employment half your working life and worrying about your upcoming redundancy. You’d be out there running your own business! So many people think that just because they are finding it hard to get a job that they can simply start a business instead. If you are starting a business because you want a job you are going the wrong way about it. You need the idea, the entrepreneur’s itch, you need to know how and why what you will be selling will make life better/easier/cheaper/faster for your customers. And then you need to find a way of making or doing it in a way that turns a profit. Start with the customers and the product or service, don’t start with your need for money. That’s right – start with your customer’s needs, not yours! Your customers have got the money, and they don’t give a damn about your need for money – they care about their needs. If you want them to help you then look after them first.
You can live on a lot less than a your salary.
Note I said can, not you will enjoy it. But living below your means is the key to an awful lot in personal finance. Living on debt is living above your means, and you are borrowing from your future self to make your present self richer. Not everybody can live on less than their salary, but the middle class can.
Your living standards will fall in the coming years
Britain has been living beyond its means for almost two decades, and the repo-man is coming along. If you aim to preserve your current standard of living and it takes all your salary, it is going to take more than all your salary in coming years. That is not a sustainable position. Adjust speed and heading accordingly. Or brace for fatal impact with reality.
The world does not owe you a living
Just because you were doing well doesn’t mean to say you will continue to do well. There are steps you can take to secure your future, but all of them mean setting aside money now to use later. A belief that the world owes you a living is one of the most truly incapacitating beliefs in personal finance. Don’t do it to yourself.
You need capital to start most companies
It’s the #1 mistake that I hear from people who have been company men. They think like company men, and the reason you and I work for a company is because we lack balls. The balls to stick our necks out and take risks and chances in this aspect of life. Well, if you want to run your own company you are going to have to start taking risks, and one of the first risks you are going to have to take is with your money. What money? The money you have been saving hard ever since 2007 when you saw the writing on the wall, FFS! Don’t give me the “oh I think I’ll borrow it from a bank” line. Why the hell should a bank advance you money if you aren’t prepared to put your own skin in the game? Got no money? They may be okay with a charge on your house. Don’t want to risk your house? Well, you should have saved some money up then! D’oh!
My web design company was one of the few types of company that was possible to set up with no extra capital, barring the setup costs to Companies House, and the computer I already had. It was because it was selling mind – intellectual capital, the organisation of bits on a webserver somewhere. These opportunities are few and far between, and there are a lot of keen young Indian chaps who can do the job for a lot less than you can…
When somebody introduces themselves as ‘self-employed Consultant’ to me I mentally make the substitution ‘Unemployed’, because they tried to start a company without capital. It works 9 times out of 10… Real companies have assets, and it takes capital to get assets. ‘Nuff said. Money begets money. Rich people buy assets that they use to make money. Everybody else spends money on stuff. It ain’t nice, it ain’t pretty, but it’s the way the world works.
The time to start acquiring capital is while you are employed
Spend less than your earn. There’s no other way of building capital with a decent likelihood of success and a decent likelihood of staying out of prison. Once you have some you may be the next Warren Buffett but even he had to start with some capital to make more. Financial capital isn’t the only type of capital – skills are another. It takes time to acquire either. This is obviously a tough message if you have already been made redundant, but if you haven’t, then for God’s sake make a start in acquiring that capital!
The time to start thinking about your business is while you’re still employed
Another bugger for the newly redundant. And a bugger for the employed, who want to simply slump in front of the telly and decompress after work rather than research the means of securing your future. Repeat after me “the world does not owe me a living”. If you want it hard enough you will do it. If you don’t, you will have to face the consequences of your inaction, but you might get lucky and not get made redundant. It’s your call, just don’t whinge, OK? Your future is in your hands.
The time to start looking for a job is while you are still employed
The bad news just keeps a-coming! My hardest job search was the first one, after six months of unemployment. It is why I haven’t had a break throughout my working career since then apart from doing my MSc, even though I’ve had enough money to pay my way for the odd year off for a while. If you think the axe is coming your way, try to jump before you are pushed.
It’s not all about you
The world is a cold and heartless place. It really doesn’t give a s**t about the fact that you’ll be out of a home or you will never realise the dream of owning a big motorbike if you don’t have a job. Getting bitter and twisted about it won’t help you at all – indeed people seem to have a sixth sense about that sort of sourpuss attitude and avoid people with it.
Business Cases are fiction
After I’d established my firm and run a course or so I figured I really ought to get some business help and went on a course run by what is now Business Link. They were really big on setting up a business case. It’s bull IMHO. You simply can’t grade all the risks and costs with any confidence as to accuracy. You can usually qualify costs, but sales and risks? If you knew the answer to how much you can sell with any accuracy it would be because you were already in business selling it!
So you can dream up a theoretical profit and loss account down to the last penny, but it’s a fiction. You never really know, and if you are any good you gotta go with your gut, after you have tried to know the things that are knowable. Donald Rumsfeld summed it up pretty well in his succinct treatise on epistemology
There are known knowns; there are things we know we know.
We also know there are known unknowns; that is to say we know there are some things we do not know.
But there are also unknown unknowns – the ones we don’t know we don’t know.
It’s the ones that you don’t know you don’t know which are going to bust your tail – or make you rich as a king. Warren Buffet’s Berkshire Hathaway was a textile company when he bought it in 1962, not an investment firm. He didn’t know what he didn’t know. And these unknown unknowns are going to scramble your business plans from the day you start operating.
I bootstrapped my company (used profits from the sales to expand, without taking on debt). You can do that if you have capital, but most people borrow money. To borrow money you will need a business plan. Just don’t start believing your own hype – empires start to fall that way. Keep a watch for the course you are following, and keep it on track or adapt as you go along.
Market Research is overrated
One of the things that Business Link will tell you is to do market research. That’s rubbish for a start-up IMO, because you need money to do market research, and because people lie if you do it yourself on the cheap, particularly if you are an eager wannabe and ask someone if they would use your product/service. They lie because they don’t want to prick your bubble – well a significant enough proportion of them lie. Knowing you don’t know is a lot better than believing you do know when you don’t, a nuance Rummy didn’t pick up.
When somebody newly redundant talks to me in a pub about this great new idea they have in general I mutter positive noises because it’s a bit rude to gratuitously p**s on people’s fireworks and kick ‘em while they’re down.That’s why there was the warning at the top of this piece so people who are looking for a pick-me-up booster don’t take this straight between the eyes. However, sometimes it is hard to keep the thread running in the back of my mind “That will never work” from breaking out
You can design your market research to avoid that sort of behaviour, but as a startup you can’t afford the price of that sort of rigour. Market research is done by salarymen working for a company when they want to test out a product that people can understand. It’s still not infallible – Coca Cola spent shedloads of money market testing New Coke on 200,000 people and still fouled up bigtime. If your product or service is truly new, then market research doesn’t work. Who knew they needed a fax machine, or electricity, or Angry Birds before they had experienced what it could do for them?
The world doesn’t need an army of consultants doing what you were doing before
If you really were a diversity outreach coordinator or similar, then there unfortunately is not such a demand for this job that people will beat a path to your door. Many of these jobs were created over the last 10 years to hide the fact that there is not enough work at a middle class/knowledge worker level for the number of people that aspire to that. During the same decade communications have improved and an army of bright young chaps who speak English has burst into the global workforce.
Some of these newly created jobs made some aspects of the world a slightly better place for the disadvantaged, Unfortunately, Britian is about to become a much harsher and nasty place for everybody, and we can’t afford some of these niceties. So if you are after gainful employment, what I am saying is you might want to be looking at something different, and perhaps more useful to some non-disadvantaged section of society that has money?
Doubts about working with or selling to someone? Go with your gut
Some people are trouble. They may just not be compatible with you, or they may be genuinely dodgy. Life is too short to work with people that give you a knot in your stomach. Don’t be all bleeding heart liberal “everybody can be redeemed” about it. Just. Say. No.
On a related note, anybody who screws you over once will be back for more. If you observed them screwing someone else over consider you may be the next victim. The vast majority of people you deal with will be ruthless but straight up, which is fair enough, this is business, not charity. But those who act underhand should be avoided. It’s not politically correct but those who cheat you can never be reformed. Don’t even try. I lost too much money before this got through my thick head.
Sadly the go with your gut doesn’t work on the who to work with side of things, though it’s a good first start…
The British consumer is on the ropes and has no money
So don’t set up in business trying to sell modest luxuries to them. Either go hell for leather and aim for the really rich consumer, think luxury brands, or go for basics if you can sell them cheaper, or go for the business to business market – those companies still operating seem to be sitting on a fair amount of money. Whereas the UK consumer is feeling skint, and is about to be getting more skint for the foreseeable future as the repo-man asset strips the UK economy. Always follow the money…
I am not a natural entrepreneur. I’ve seen enoughreal entrepreneurs up close and personal to know that. I hate selling with a vengeance. Having tried, and again having seen others selling, both at work and outisde work, I know it’s not for me. I am an engineer, not a people person, though I don’t have the gauche crassness that many engineers have with people. Obviously if you have just been made redundant and are reading this far you might take issue with that assertion, but I did try and warn you up top. Many natural engineers verge on the borderline autistic and would come up with “well, it’s how it is, why are people getting upset?”
On the other hand, I can in some circumstances take people with me. I can stand up in front of 200 people and try and put a point across. I can talk to a customer and find out why they want to do something in a particularly expensive way and see if we can find a way that works for them and works for me/my company. I can sometimes see the view from 30,000 feet and observe a long-range hazard or unsustainability with enough distance to be able to change tack or minimise the effects. I am not a natural optimist but I’m not a doomer either (yeah, I know, you wouldn’t have thought it from this blog but then on the Internet nobody knows you are a dog )
That kind of insight comes from introspection and reflection. It is likely to be error-prone, no entity can encompass itself, but it leaves me with at least some awareness of my strengths and weaknesses. That way I can play to my strengths and/or team up with people that complement my strengths and weaknesses.
It would seem logical, if you are about to take on risky enterprise like starting a business, to have at least some idea of what you’re good at and what you aren’t. It would be a bit crazy for me to become a travelling salesman. I could and have headed up a company but I am overly conservative and risk-averse for it to fly, I would be far better suited to be the wind beneath the wings of someone more entrepreneurial.
So know thyself. It was good enough for Socrates, and it will help you play to your strengths.
Still want to start up in business?
Take a look at this article on how great entrepreneurs think.The essential characteristics seem to be under the heading Do the Doable, then push it-
Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.
That is not to say entrepreneurs don’t have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research.
If you’ve been working for the public sector for years then you will probably be thinking more like a corporate leader than an entrepreneur. That’s great if you’ve got the resources of a corporation behind you. If you’ve been made redundant you haven’t got that, so you need to get yourself into entrepreneur mode to be able to run with what you’ve got.
I couldn’t do that, which is why I stayed in my job and walked away from the path of the entrepreneur. It was right for me – but then I didn’t need to make it work, whereas if your main income is from being self-employed you need to make it work.
I’m not a headbanging wingnut that despises the entire public sector, there are many jobs that do need doing, including middle-class managerial level ones. I believe that contracts should be honoured, including pension commitments. Legalistic machinations like the RPI/CPI switch are despicable IMO – these are British citizens who took the commitments in good faith. Like any enterprise, the State has the right to change its mind in what jobs they get rid of or retain, but it should honour its existing commitments, and take responsibility for its actions. If previous administrations need to be charged with maladministration that should be done in a measured and open way. The State is also entitled to change its mind in how it remunerates these positions in future, again like any private company. That, unfortunately, means pension accrual in future – a pension is deferred pay, and it can be changed. It happened to me in the private sector.
However, this post was inspired by coming across one too many examples of a redundant public sector worker who also suffered from a shocking sense of entitlement and the feeling that life wasn’t fair. Life isn’t fair, it was my mother who informed me of that, and to be honest I would have read the writing on the wall as soon as the Tories became part of the government. That means that this fellow has had nearly a year to take action, but failed, and this seems a common theme in the public sector.
That passivity is like a rabbit frozen in oncoming headlights, and that rarely ends well for the rabbit. I can testify that you can do something – if you start before you get your P45. I started in April 2009 when I experienced an outrageously incompetent piece of line management in the teeth of a company crisis and realised that I did not want to be owned by anyone. I wrote this as my first post one year into the plan (the preceding High Water @ Woodbridge was to test the software).
I am two years in. You can see how I responded in my net worth graph(square blocks)
The debts are the tail end of me grounding my mortgage; I don’t consider the value of my house to be part of my net worth. The rise starts as soon as I identified something has to change in April 2009, and is now well above my annual gross salary, thanks to the tax-free status of AVC savings along with full ISA contributions across 2½ years. The dips are not holidays or consumer thneeds, they are purchases of business equipment, which I also don’t consider as part of my net worth. The rising debts at the end are a credit card stooze, the funds of which are in the care of the Nationwide Building Society at the moment.
There’s a moral to this story – raise your eyes to the distant horizon, and if you see storm clouds gathering there then roll up your sleeves and do something. The way to avoid a crash is to take corrective action before you are ploughed into the back of the car in front!
There’s nothing that special about me, I am an ordinary guy doing a regular job. If I can do this then you can too, if you are one of these middle class public sector workers. You should be one year into your financial defence plan by the 6th May, but starting now isn’t so bad…