If You Had To Cut Your Expenses By 50% Tomorrow, Could You Do It?

With the looming recession comes layoffs, vivid memories of my own downsizing experience, and our struggles to cut spending when we needed to most

The year was 1982…

…and I was in the third grade. My friend John and I won a prize for the best Thanksgiving drawing.

Turkeys traced from ten-year-old hands littered the walls of our classroom; however, John and I had rejected this childhood rite of passage. We had no use for glue, brown construction paper, crayons, and safety scissors. Instead, we drew a poster-sized picture of the Mayflower.

Not the Mayflower. I couldn’t find that. And I didn’t rifle through my box of childhood “art” for this. No, sadly, this is 50-year-old Allen, trying his best.

We had drawn a lot of things together in the third grade, usually race cars or motorcycles, but this was our masterpiece. It was the best thing we’d ever done. It evoked oohs and aahs from classmates and teachers alike. It was so good that I began to entertain the fantasy that we would be allowed to skip the remaining lessons that day and perhaps the third grade altogether.

Ten minutes later…

I was in the hallway getting three licks from my teacher and her trusty board of education, a worn old piece of oak about two feet long, taped at the handle, with those words burned onto the ouchie bit. My crime? I ran screaming through the girl’s bathroom on a dare.

One minute, you’re on top, and the next… well… let’s just say, life turns pretty fast.

Fast forward to 2010…

…work was very busy. I was in year 2 of leading my new team and things were starting to come together. We were getting things done. People were growing and learning. We were solving harder problems and making an impact. Morale was high.

Ten months later…

“Most of you are being laid off.”

We had joined an impromptu conference call that afternoon and learned that we were being outsourced as part of a strategic effort to reduce costs.

As I said, life turns pretty fast.

Landing on my face

We were encouraged to apply for jobs with the outsourcing firm that was replacing us. They wanted to retain as much knowledge as possible to make the outsourcing transition successful.

“So I basically do my same job under a different logo,” I thought. “What’s the big deal?”

The big deal was that I wasn’t ready.

I wasn’t ready for the differences in work culture under the new company. This is when I first realized that company culture and fit matter.

I wasn’t ready to treat my former colleagues, the ones who weren’t laid off, like clients. I certainly wasn’t ready for them to treat me like a vendor. Our relationship felt different.

I wasn’t ready to disappoint my former colleagues. My new team had some seasoned people, but it was mostly made up of freshers who were still learning how to solve problems.

Fresher (noun) An IT worker with academic, but little to no work experience

It was the same role, but a different job.

First came a chain of sleepless nights, followed by overwhelming stress, followed by a breakout of shingles and the worst pain of my adult life. I lasted just a few months in the new job.

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“All of this has happened before, and it will all happen again.” - J.M. Barrie

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A little job-security PTSD came rushing back to me this week when I started seeing new headlines about a recession and fresh layoffs.

“No, Jenkins, your work is fine, exemplary in fact! We just don’t like that you’re getting more sleep and quality time with your family.”

Tech workers are particularly vulnerable to layoffs in a recession. We’re expensive to hire, we’re expensive to train, and our projects are chock-full of pricey hardware and software.

In my experience, leverage swings back and forth between employer and employee like a pendulum. The pandemic shifted leverage to employees as companies competed for reopening talent by increasing pay and offering more flexibility to work from home.

Recessions shift leverage back to employers. Laid-off workers will compete for fewer open roles and will make concessions on salary and remote-work demands.

I have retired from corporate life and I’m grateful that I’m on the sidelines for this swing of the pendulum, but I still feel for those who have been (or are about to be) impacted.

Hedonic Adaptation

When I was fired, I felt like I had no choice but to take the first job offered to me. We had a huge mortgage, two car payments, and a habit of eating out four or five times a week. We had no savings to sustain a multi-month job search. As JL Collins would say, we had no FU money.

Perhaps more alarming was that we didn’t know how to cut back. Psychologically speaking, everything we spent money on felt absolutely essential.

Eating out, for example, was just part of our routine; a necessity in our important and busy lives. At least four times per week, we sat like kings while servants brought us over-filled plates of food and endless glasses of sugar water. Why did this feel so routine instead of like the amazing, wonderful splurge that it was?

It is because we had eaten out so often that we became accustomed to it. Mr. Money Mustache is right, hedonic adaptation can definitely turn you into a sukka.

The good news is that hedonic adaption works in both directions. We eventually return to our normal level of happiness whether we increase or decrease our spending levels.

Frugality takes practice, don’t underestimate that

I speak from experience when I say that if we do not practice self-control and frugality while our income is high, we’re not going to easily flip that thrift switch to the on position when life deals us an unexpected hand.

During a layoff, anxiety and stress levels can run high, and then “emotional us” tries to take charge of our spending. If we are inexperienced with frugality, we will struggle to draw a line between our needs and wants. We will find ourselves in the difficult position of trying to break an addiction to spending that has been feeding us dopamine and serotonin for decades.

Even in a well-planned retirement, most of us will be “first-timers” living on a fixed income. It isn’t realistic to unconsciously spend $100K per year while working, and then, back-of-napkin, say “I think I can live on about $75K per year in retirement,” and expect that to be successful.

“My turkey drawings aren’t great right now, but I’ll instantly draw better turkeys when I retire.” - Me.

“Not if you never practice drawing turkeys.” - Reality.

The time to start living on $75K per year (if that’s our number) is before we retire.. before we’re laid off. We need to test that; we need to practice. We need to give hedonic adaptation the time to work its magic and for our level of happiness to equilibrate with our lower cost of living.