The economy has been on the mend for some time, but it's a fact of life that not everyone's personal economy will be in concert with the rest of the world. Maybe you're expecting a baby and you or your spouse plan to take time off from work to be a stay-at-home parent. Perhaps you are being laid off, or you've decided to take a lesser-paying job that's fulfilling but won't exactly fill your bank account.
Whatever your situation, if your budget is taking a big hit due to an income drop, here are some suggestions from people who have been there or are there now.
Budget now. It may be tempting to catch your breath and not adjust your budget immediately. If you're choosing to cut your income in half due to a baby coming, you may not feel that it's urgent to cut back. If your income plunge was unexpected, you might feel that you deserve to take a break for a few weeks and collect your thoughts. And you do -- but while you're collecting your thoughts, those expenses and debts are collecting, too.
[See: 11 Expenses Destroying Your Budget .]
Dan Cumberland, a blogger who owns a photography company in Seattle, says he and his wife, Stacia, quit their jobs four years ago to move across the country so he could attend graduate school. "We weren't in high-earning jobs, but we were very comfortable," Cumberland says. They were able to stay relatively comfortable making less money because they created a budget and stuck to it.
"Instead of projecting what you may make, you start with what you have right now and budget it out," Cumberland says.
Cumberland downloaded software at YouNeedaBudget.com and found it very helpful, although at $54, it may not be for everyone. Still, whether you rely on a service to help you budget or your own skills, now is the time to make adjustments.
Pare back expenses. You can save a lot of money and have more to work with by reducing your expenses. Everyone knows that, but it's easy to forget just how much you can save. About two months ago, Dan McGaw, who lives in Orlando, Florida, quit his six-figure salaried job to start his own business. He and his wife are also expecting their third son any day now.
"We are making it work by being creative," McGaw says, reeling off some of the ways he has chiseled away his monthly expenses in the past several weeks. He switched car insurance companies and saved $150 a month. He refinanced their SUV, reducing his car payment by $220 per month. He bought memberships to both Sam's Club and Costco and says the family is now saving $200 a month on food. (Keep in mind that if you aren't careful, you may find that you spend more than save at discount bulk stores.) McGaw says the family also scaled back on dining out, likely saving $100 a month.
[See: 10 Quirky Ways to Save Money.]
Leslie Buttonow of Long Island, New York, has been doing much of the same thing. She was laid off earlier this month from her 16-year job in public relations. "I've decided to use this time in between jobs to finally find time to do something I've been talking about for the past few years -- shop around to be sure I'm getting the best rates on my auto and homeowners insurance," she says.
Try to look at the bright side. Sarah Weinberger, a software engineer in Santa Monica, California, was furloughed from her job due to a drop in orders. She now works three days a week instead of five. "I've seen my compensation drop by 50 percent, supposedly temporarily because of their financial stress, but that has been going on for about a year now," she says. "Coping has been tough, and there are no magic bullets."
But Weinberger has stayed positive. She started a side consulting business, and she is looking at the past year as a period of character growth since she hasn't had much financial growth. "The nice thing is that a drop in income forces a re-evaluation of expenses and a true view on what is a necessary expense and what is not. That's nice to do every once in awhile. It's also a nice way to do long-term planning," she says.
She also gets more exercise than she used to. "I walk more now for errands than take the car," Weinberger says.
Cumberland is also optimistic. "It takes time to adjust to a new lifestyle, but if you can remain positive about it and be creative, you'll be surprised how much you can enjoy life without the amenities that you once had access to," he says.
But be realistic about the bright side. If you're facing an income adjustment, don't beat yourself up if you aren't able to generate a lot of optimism about the prospect of having less money. Living on less money is difficult, and it can involve a lot of sacrifices.
[See: 8 Painless Ways to Save Money .]
For instance, Cumberland and his wife ended up getting housemates instead of living in their own home. "It was a hard decision," he admits, but it's a temporary arrangement and has certainly helped them in the meantime. "This cut our rent to two-thirds of what it had been," he says.
Meanwhile, Shirley Green, a 63-year-old who lives in the Denver area, never quite rebounded from losing her $55,000-a-year job as a process analyst in 2003 at a company that employed her for 25 years. Ever since, she has worked in occasional, short-lived jobs like front desk clerk at Walt Disney World. Green currently has a temp assignment and makes $13 an hour. She isn't sure how long she'll have the position.
"Pretty darn scary," she says, adding that a lot of people think senior citizens have huge pensions and no bills, but that isn't the case for her. In fact, she is worried that she may soon be living in her van -- "again," she says.
So an attitude adjustment may help with an income adjustment, but then again, it may not. Surviving an income drop isn't an exact science. It's math.
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