And Then There Was One: Surviving on a Single Income/ March 12th, 2012
Maybe your company merged with another company and management informed you that in six months the work force would be slashed. Maybe you showed up for work and your pass didn't let you in the door, your phone was disconnected, and your name was on a do-not-allow-inside list with security. Or maybe you and your partner just decided to make do with one income for a variety of reasons. Regardless of how it happens, losing an income presents a challenge. There is never a good time to lose a job. Sure, some people might ride the severance wave a few months before starting graduate school or others might get the pink slip right before announcing a career-suspending pregnancy. But most of the time, a layoff or pay cut is bad news. Whether it's dire straits is somewhat up to you. Keeping your head in the transition to a single income can make the difference between an unpleasant stretch of unemployment and a true financial crisis. Having your wits about you while you're still employed can allow you and your family to maintain your standard of living for months as you search for employment, or downshift permanently. In other words, you need to start preparing for income interruption as soon as you enter the work force.
Don't panicDon't panic, says Michael Sangirardi, a New York financial planner who works for Ameriprise Financial. Panic, he says, leads to poor choices, like invading retirement accounts, dropping health insurance, or selling investments. Sangirardi says his goal is to help clients accurately evaluate their situations, develop a plan, and then execute it deliberately. Part of that involves keeping clients from making rash decisions out of fear. "Our job is to create clarity and give clients an opportunity to find quality work," he says. "The goal is not to have them jump at any job, but to find a good fit."
The people at your credit union can help you make the most of your resources.
Befriend your budgetThe first step in developing a reduced-wage financial plan is to assess reserves, severance packages, government assistance, and any other remaining sources of income to determine how much money is still coming in and for how long. The next step is to assess monthly expenditures to determine how much money is going out and to look for opportunities to trim spending. That exercise, Sangirardi says, will tell you exactly how much money you'll need each month and how much time you have before you really need to worry. "The biggest thing is to go back to the basics and get a handle on your budget," agrees Scott Bombeck, a Philadelphia-area financial planner and president of Acanthus Associates, a financial services company. "It's one of the things that 95% of us don't do or don't do very stringently as long as we're making ends meet." When dealing with a pay cut, most families or couples will need or want to trim expenses. Bombeck says even seemingly small expenses, such as a $16 Netflix subscription, can make a difference—nearly $200 a year in this example. Cable and phone packages are a common source of savings, as are scaling back or eliminating vacations or dining out. Some families even start making different choices at the grocery store. "People have to be fed and families have to survive, but you can always downgrade," Bombeck says. Sangirardi says clients often have a hard time identifying opportunities to save, so he has them keep a spending diary for a few weeks. They write down every dollar that leaves a wallet or an account. "People always come back with a completely different perspective about how much money they really have and where they're spending it," he says. Bob Glenn, president and CEO of Air Force Federal Credit Union, San Antonio, says even some fixed expenses can be changed or deferred. He advises members to look for opportunities to reduce credit card payments, to refinance mortgages, or to suspend other loan payments for a period of time. "People need to reach out to creditors to see if there are specific programs in place to provide additional assistance," he advises.
Look for opportunities to trim spending.Glenn notes that federal programs such as the Servicemembers Civil Relief Act can help some military families reduce interest rates and other monthly financial obligations. Air Force Federal has its own programs that extend similar benefits to a broader pool of members. "We can only deal with the debt that's ours," he says, "but we work with folks to help them get the help they need." That might include referrals to credit counseling or other area programs. For example, Glenn says, the San Antonio-based Alamo Area Consumer Education Partnership offers "wallet wisdom" and other classes to help individuals and families get a better handle on finances regardless of their circumstances.
Make hard choicesLosing a job isn't just a blow to your finances and to your self-esteem. It also can wreak havoc on your social life. Sangirardi says changes are necessary, but using your plan can help you determine how drastic those changes need to be. For example, a good understanding of your budget will tell you whether you should sell this season's 50-yard-line football tickets or whether you should let them go for good. "The last thing you want to do is run up credit card debt in order to maintain a social calendar that you can't afford," Bombeck says. You have to strike a balance between maintaining a social life and your spending plan.
You don't have to wait until you're living on one income to start planning for it.Sangirardi warns against eliminating networking, social or otherwise, altogether, as interaction with colleagues and peers can generate job leads. Simply budget for it—and then don't spend more than you've budgeted.
Prepare for the worstDon't wait until you lose a job to start planning and saving for emergencies. Experts agree that a few strategies will put you in good financial stead even if one breadwinner stops bringing home the dough. "There is nothing like planning to avoid problems down the road," Glenn says.
- Build up a rainy-day fund. Experts suggest having a three- to a nine-month expense reserve.
- Know your obligations. Many military reservists know they could be called up to active duty, but they don't know the exact terms or what resources are available to family members during any tours.
- Save automatically. On payday have money automatically transferred to an account that is somewhat challenging to access. Start small—say $50 a month—and build up as it becomes easier. Sangirardi also advises clients to save at least half of any bonuses or raises.
- Avoid credit card debt. Bombeck says credit cards can be useful for taking advantage of deals and building a credit history, but only if you pay them off every month.
- Live below your means. Some financial experts recommend living on the lower of two incomes and banking the other. If there is great disparity between the incomes, Bombeck says to meet somewhere in the middle for your saving/spending ratio. Either way it trains you to live on less than you bring in, and it quickly builds retirement, education, and rainy-day savings.
- Consult a financial planner to develop sound budgets and savings plans.
- Talk to the professionals at your credit union. They can help you get on the right track to building an emergency fund and saving for the future.