What If You Both Lost Your Jobs?

This article represents a personal view and is not financial advice. It describes one modelled household, and your own figures will produce a different answer.

Almost nobody would describe themselves as someone who bets the house. Most people with a mortgage already have. Borrowing a few hundred thousand pounds against a property is a commitment that runs for two or three decades, and the thing paying it is an employment contract that can end on notice measured in weeks. That is not a figure of speech. It is the structure of the arrangement.

Would You Bet Your House on Your Pay Arriving?

Stated that way it sounds reckless, and it is not. Borrowing against future earnings is how most households come to own anything at all, and refusing to do it carries a cost of its own. The problem is not the bet. The problem is that very few people have ever sized it, because the pay has always arrived, and something that has never failed stops feeling like something that can.

The usual protection is a second income. Two salaries, so that if one stops the other holds the house up. That instinct is right, and the second salary turns out to be worth more than most people assume. It is still worth checking, because two salaries are not automatically two independent incomes.

Two Salaries Are Not Always Two Incomes

Diversification only works when the things you hold can fail separately. A household is diversified against redundancy when one income stopping leaves the other one standing. Plenty of two-earner households do not clear that bar, for reasons that are ordinary rather than careless.

• Same employer. Couples meet at work, and one partner often follows the other into a company that happens to be hiring.
• Same sector. Two people in construction, or hospitality, or anything that moves with interest rates. A downturn does not arrive one household at a time. It arrives one industry at a time.
• Same town. Where one large employer dominates the local economy, the second income depends on it even when it is not paid by it.
• One career supporting the other. If one partner went part-time, or took the flexible and lower paid job so the other could take the demanding one, that is one career and one support role rather than two careers.
• The same skill sold twice. Evening or weekend work in the same trade, for the same market as the day job, is one income arriving in two envelopes.

None of that is a mistake. It is what happens when two people build a life in one place, and most of it was the right call at the time. What it changes is what the second income is insuring against, and the size of that change can be measured.

One Household, Three Versions of the Same Year

Take a household. Two net salaries of £2,900 and £2,200 a month. A £240,000 mortgage at 4.5% with 22 years left, which costs £1,434 a month. Everything else, meaning bills, food, the car, childcare and insurance, comes to £1,950. They hold £18,000 in accessible cash. On those numbers they are comfortable: £5,100 arrives, £3,384 leaves, and £1,716 a month goes into savings.

Now stop the income on the day the letter arrives, and let the mortgage and every bill carry on. Three runs of the same forecast, moving one field between them: both salaries running, the larger salary stopped, both salaries stopped on the same day.

Losing the larger salary on its own, the cash lasts 15.2 months. Losing both on the same day, 5.3. So the second income is not halving the risk. It is close to tripling the runway, 2.9 times over, which is a bigger difference than most people would guess.

That is the argument for the second salary, and it is also the entire reason the correlation question matters. Every month of that difference is conditional on the second income surviving the event that took the first. Same employer, same sector, same town, and the line this household is actually on is the bottom one. The fifteen months they think they have is five.

Notice too that nobody here has done anything wrong. They save nearly £1,700 a month, they hold £18,000, and the standard advice of three to six months of expenses would mark that as done. Five and a third months sits inside the range the advice recommends.

The buffer arithmetic itself, including what statutory redundancy pay covers and what it does not, is set out in redundancy-proofing your finances. This is the question sitting underneath it: whether the second income you are counting on is a separate income at all.

The Advice Everyone Gives, and What It Is Worth

The standard response to all of this is to build multiple income streams. It is the most repeated sentence in personal finance, and it is not so much wrong as slow. A second income takes months to start and years to reach a size that changes an outcome. It costs evenings and weekends, which is the resource a household with young children has least of. And it often fails the test above anyway, because the easiest second income to build is the one selling the skill you already sell, to the market that already buys it.

So it is worth pricing rather than assuming. Take the same household with both salaries gone, and give it a side income of £250 a month after tax. Three runs again: no side income at all, the side income arriving and being spent as it comes in, and the same side income saved for two years first and then still arriving. The only difference between the second line and the third is that the third household has £6,000 more in the bank.

The side income continuing through the redundancy is worth 0.42 of a month. About twelve days. The same money, banked for two years first, is worth 1.91 months, four and a half times as much. Identical effort, identical £250, and nearly all of the value came from where the money was put rather than from the fact that it was earned.

That is worth separating from the earlier result, because the two pull in different directions and both are true. A full second salary is worth a great deal, when it is genuinely a second income. A £250 a month side project is worth about a fortnight, unless it is saved, in which case it is worth two months. Those are different things, and only one of them is available to most people this year.

The Lever You Actually Control

You mostly cannot diversify your income. Most people have one employer, one skill and one local labour market, and changing any of those is a career decision taken over years rather than a financial one taken this month. What can change this month is how long the household lasts without pay. Three things move it, and none of them requires earning more.

• The buffer. For this household every £3,384 in the account is another whole month. That same £250 a month, saved rather than spent, buys a month roughly every fourteen months.
• The gap, rather than the spending. What decides the answer is not what the household spends but what would still be leaving after the income stopped. Subscriptions are easy to cancel and worth almost nothing here. The mortgage, the nursery place and the car finance are the ones that set the number, which makes them worth weighing before signing rather than after.
• The time to the next job. A three month search costs half what a six month search costs. Current skills and warm contacts buy runway in exactly the way savings do, and they cost something other than money.

Once the runway you want is a number of months rather than a rule of thumb, filling it becomes a saving question with a date on it. The savings goal calculator turns a target and a deadline into the monthly amount it takes to get there.

None of that is exciting. It does have the advantage of working whether or not your two salaries turn out to be correlated, which is the part nobody knows in advance.

In CrestCast this is a version rather than a rewrite. Copy your household, change one thing, compare the two, so the plan you actually live on stays exactly where it is while the stopped income runs beside it.