Practicing for a dramatic drop in income
Doing a practice run for a dramatic income drop can be a helpful way to test out a worse-case scenario or to see what the adjustment might be like for major changes in your life.
You might want to do this if you’re considering having one parent stay at home with a child, striking out on your own to join the ranks of the self-employed, or just if you’re very concerned with what things might be like if you lost your job.
Instead of living off what you normally do, practice living off just one person’s salary for a month and see how it goes.
Of course, practicing is not quite the same as actually having the drop in income. The practice period doesn’t have the same emotional impact as reality would, and emotions are a big deal. This is especially true if you’re uncertain about when (or if) your income might increase again.
But practicing can at least let you test out the technical details. You can learn what it’s like to say no to a lot of stuff that you used to say yes to. You can kind of ease into things.
Most importantly, you can see if your expected new income is even feasible, or whether there are other things you might need to change first before making a big leap.
Another benefit to practicing is that it can let you build up a larger cushion. After all, if you’re not doing whatever you used to do with the money, you can now use it to build up savings.
Have any of you ever tried this? How did it go?
April 10th, 2009 at 5:32 am
This is a quite scary suggestion. However, I see the benefit to your thinking. In today’s crazy job market it would help someone to know what is a want vs a need. It’s wiser to do this now than after the fact I guess. Having a cushion could only benefit someone.
April 10th, 2009 at 11:50 am
I have never heard of that suggestion before either, I understand its usage, but doesn’t seem practical. Basically its a way to save a lot more money in that time period, but going to extremes.
April 10th, 2009 at 11:53 am
Hm, I think it’s really practical for people who are thinking about quitting their jobs to SAH or to work for themselves. If you’re planning to go without the income, wouldn’t it make sense to be sure you can actually do so first?
April 10th, 2009 at 1:41 pm
I think it’s an excellent suggestion. A friend of mine started doing this about a year into her marriage. They are saving 100% of her salary and living off of her husband’s income only in uber expensive Los Angeles. They want to have children at some point and know that she will have to stop working for a bit, so they want to be prepared. But I have been so impressed with their commitment. They are trying to buy a condo–on his salary alone. She told me that growing up with a special needs sibling taught her that anything can happen at anytime, so she wants to do all she can to be prepared and secure financially. It’s brilliant.
April 11th, 2009 at 2:48 pm
Actually, I started doing this last fall when I had an inkling that our jobs were in danger. I projected possible savings and income post-layoff, and worked on cutting all expenses down to a minimum so stretch the post-layoff dollars further.
It’s been beneficial to keep expenses down because it’s an adjustment best made gradually, not suddenly when the income is lost, and it’s been great to have that extra money go to savings in the interim. It gives me a good luck at what works and what doesn’t before the noose is tightened, so to speak.
April 11th, 2009 at 10:18 pm
I think it’s a great idea.
People who are trying to save the whole income of one partner for a downpayment for a house, for instance, basically do this.
April 14th, 2009 at 1:42 pm
I think it’s a great thing to strive for, even if you can’t implement it right away. My wife said that Suze Orman suggested that couples try to live on one salary as a prelude to one of them getting laid off.