Surviving on One Income/ September 10th, 2021
Maybe your company merged with another company and you were informed that your job was downsized. 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. But if you prepare for that possibility while you're still employed, you’ll be able to manage for months as you search for employment, or downshift permanently.
Befriend your budget
The first step in developing a reduced-wage financial plan is to assess your savings, 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 expenses to determine how much money is going out and to look for opportunities to trim spending. That will tell you how much money you'll need each month and how much time you have before the remaining sources of income end.
When dealing with a pay cut, most households will need to trim expenses. Even seemingly small expenses, such as a Netflix subscription, can make a difference. Cable and phone packages are a common source of savings, as are scaling back or eliminating vacations or dining out. Even some fixed expenses can be changed or deferred. Look for opportunities to reduce credit card payments, to refinance mortgages, or to suspend other loan payments for a period of time. Reach out to creditors to see if there are specific programs in place to provide additional assistance.
Make hard choices
Losing a job isn't just a blow to your finances and to your self-esteem. It also can wreak havoc on your social life. Changes are necessary but using your plan can help you determine how drastic those changes need to be. For example, a 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. Also, avoid using your credit cards to maintain a social calendar that you can't afford — this will only work against you. Find ways to stay active socially that won’t negatively impact your new spending plan.
If you currently have two incomes, and are planning to manage on one income in the future, there are a few good financial strategies to begin using now to prepare for that future state:
- 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, 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 your reserves.
- Create an emergency fund. Experts suggest saving the equivalent of 3 to 9 months of expenses for unexpected events, like a medical emergency or job loss.
- Save automatically. On payday, have money automatically transferred to a savings account. Start small—say $50 a month—and build up as it becomes easier. Also, consider putting at least half of any bonuses or raises into this savings account.
- Avoid credit card debt. Credit cards are useful for building a credit history or earning reward points, but only if you pay them off every month.
- Consult a financial planner to develop a good budget 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.