My brother works in a factory. He makes good money, but it’s very hard work. Once or twice a year the plant will shut down for a week, usually for scheduled maintenance. Though the break is great for his physical and mental health, these are not paid days off. Even though he knows this time off is approaching he seems to always be scraping by when it comes time to miss a week’s pay. Often this means asking my parents for cash to meet his obligations. How can I help him better plan for this time off financially?
A Superior Sister
Dear Superior Sister,
As unfortunate as it is, your brother is not alone in his inability to budget for this time without pay. I know several people in my personal life who are unable to fund time without pay whether due to unpaid vacation, government furloughs, or (seasonal) unemployment. I think it’s also important to recognize that it may take some time and considerable effort for him to be able to cash flow this time off of work. There are a couple suggestions you could make in helping prevent him from having to borrow money from your parents. Ultimately, your brother needs a “shutdown fund.”
Ideally, he would have an emergency fund and a shutdown fund, but it sounds like thus far saving in general has not been a priority. The reality of his situation is that when his pay is averaged over the 52 weeks in a year he’s over spending since he’s missing a week or two's pay. The solution which will feel the least restrictive is for him to pay himself, almost as if he’s a salary employee. I know that’s probably clear as mud, so allow me explain with an example?
In this example, we’ll assume two weeks of shutdown per year. Let’s say he’s paid every Friday and his check is $1,000. This means he’s taking home $50,000/year. If every week he spends the entirety of this $1,000 (as it sounds like he is) he faces a $1,000 deficit twice a year. If he wanted to maintain consistent cash flow for the entire year he should divide his annual income by 52 and use this amount (~$961) to budget. He would only need to put $39/week in his shutdown fund. This $39, though it seems small week-to-week, will ensure he has enough to “pay himself” $961 twice/year in lieu of his weekly check.
In a perfect world, he should be budgeting based on the $961/week amount and should also be placing 10% of his take home pay (~$96) in an emergency savings account. I would recommend keeping the emergency savings account separate from his shutdown fund. This way he can see the consistent increase in his emergency fund separate from the shutdown fund. His bi-annual withdrawal for shutdown might decrease his motivation if the funds are in the same bank account. Although, if he is not accustomed to saving at all attempting both methods at once is likely to feel financially overwhelming (and understandably so).
There are opportunities to superfund each of these accounts which might help him achieve some financial momentum. For example, any overtime earned should be put straight into the emergency savings account. Since overtime is usually variable and often unpredictable the money earned as a result won’t be a part of a regular budget. For many, another opportunity to put away cash is with a tax refund. Overtime, a raise, or even a bonus provide opportunities to build up his shutdown account or his emergency fund.
Regardless of the route he chooses it’s important to place the money in savings first. Budgeting the rest of his week without the ~$39-$135 from the moment he’s paid will be a huge help in his financial success. Encourage him to change his direct deposit so these funds are automatically transferred to his savings accounts. It won’t be easy to go without this cash from week to week so making as much of this as possible “automatic” will help him succeed.
As stated, it won’t be easy. Delayed gratification is difficult, especially when it comes to money. However, when your brother begins to feel financial independence I think he will find the planning well worth it. As for you, remember, he isn’t going to get it right every time. But each time he’s able to save he will be one step closer to breaking his dependence on your parents.