Our Recipe for Successfully Losing an Income
In a previous post, I provided some insight into a big change in Sarah and I’s financial world. In 2016 I was given a working notice for the job I had been at for the past decade. This meant that we had to prepare for the possibility of going down to one income for 2017. It was a scary situation. Sarah and I have had comparable salaries for several years. We both considered ourselves lucky to have solid incomes. We had worked really hard to get to where we were. The potential loss of my pay meant that we’d have to prepare to cut our expenditures in half.
Why It Is So Important To Be Proactive
It should be no surprise Sarah and I have had a joint budget since we started preparing for our wedding. If you’ve checked out our podcast or Sarah’s joint finances blog post you know we are very open about finances. We share our goals, our dreams and our methods. When we have the opportunity to foresee a big financial change this is important. We both believe that it is important to be proactive in preparing for that change. We had been doing stuff like that for a while.
Our First Home
When we purchased our home, it wasn’t built yet. We bought off a site map and a floor plan. It was a lesson in delayed satisfaction. It also provided us with some time to prepare for the vastly different budget we would need as homeowners. In my basement apartment, we didn’t have to worry about several future expenses. House insurance, property taxes, utilities (outside of internet), maintenance or mortgage payments to name a few.
I did have to pay rent obviously, but my rent payment was only $900.00/month. Less than half of what our mortgage payment would be. We immediately revamped our budget to start putting aside any money that would be needed in the future for the house. This worked well for us because we had a chance to work out any kinks that we hadn’t thought of to make sure our budget was seamless going into a home ownership situation. The same principle applied with my working notice.
Forced Budget Rejuvenation
With a potential loss of 50% of our household income, we knew we would have to make changes to our budget. The changes would affect everything from our lifestyle to our RRSP contributions. Between May and December I was still going to be receiving my full salary, so we could have waited until close to the end of the year and then made changes – but that isn’t the way we do things. We wanted to start living on a budget exclusively off Sarah’s income as soon as possible. This would allow us to re-direct my salary to beef up our emergency fund, save for a car to replace the company car I was going to be losing, and cover any shortfalls in our budget we might not have thought of.
Talking About Priorities
One of the most important parts of forming (or reforming) a budget is to figure out your priorities. A budget is just a financial snapshot of your priorities if you think about it. With the potential loss of an income we had to revamp our budget, which meant revisiting our priorities. This isn’t an easy task, it would be amazing to have an unlimited about of money but that isn’t reality. Choices need to be made about what stays and what goes.
You don’t want to slash every bit of spending humanly possible, just like when you go on a diet you shouldn’t necessarily live off carrots and water. Your body needs nutrients, and your budget needs some flexibility to keep your sanity. For us, we decided that it was a priority for us to keep our house so we made that priority numero uno. We talked out the rest, line item by line item and slashed as needed.
Slashing Our Expenses – Bye Bye Cable
The first move we made was to start slashing our expenses wherever possible. We already had a few thoughts on how to cut down our spending since we had gone through the process of determining our barebones budget when we calculated our emergency fund requirements. One of the first things to get slashed was our telecom bills. I wrote a post about this last year, before releasing the reasoning for the change. Through the changes we made we managed to save $142.00 a month.
Slashing Our Housing Cost
Our next expense to tackle was our mortgage. At my previous job, I was paid weekly. In our previous budget, it made sense to have the mortgage come out weekly as well and have that be part of what my pay would take care of. We had been increasing the payments annually to fast track our amortization and had changed our mortgage to an accelerated weekly payment. Basically our monthly payment was divided by 4, and that became our weekly payment. A simple explanation of the mortgage payment options can be found at ratehub.ca.
We were paying $600.00/week through increasing payments each year where we could. We reached out to our mortgage advisor and requested a meeting to talk options. Renegotiating our mortgage early to take advantage of a lower rate was the plan. We also went back to monthly payments to match up with Sarah’s pay schedule. This saved us an additional $400.00-600.00 a month.
Slashing Our Savings
The biggest steps we took to get down to being a single income household was our savings plans. We had equal amounts being put regularly into our RRSP accounts, we had money being socked away for vacation, for gifts, for self-improvement (courses, exercise equipment, etc), for golfing, the occasional dinner out and our curveball account. Not all of these funds went down to zero – but it would not be responsible to spend any money on golf when we have to make sure we keep a roof over our head.
The cuts to our RRSP savings were the most difficult to deal with, and given that I did find another job (albeit at a lower salary than my previous role) this will be the first thing to get restored. We have a few other things to sock money away for in the near future – including some home renovations and my best friend’s wedding this fall. Once all that is taken care of, we’ll look at spending on the frills again.
Work Towards The Best, Plan For The Worst
I was optimistic that I would be able to find a job and bring in at least some income. I don’t think there is any shame in slugging boxes in a warehouse, stocking shelves or delivering pizzas. You do what you need to do to take care of your family. That said, it is a rough job market out there and even though I was optimistic Sarah and I had to plan for the possibility that my income would go down to nothing. It takes a lot of self-control to make huge financial changes before they are absolutely required.
Building up your financial cushion can make the hard times a bit easier though so it is very important to be responsible with your money. You won’t always have the opportunity to be proactive, life has a habit of throwing things at you quickly. When you are lucky enough to have the opportunity to be proactive – don’t put yourself in a situation where you might need to rely on credit to get through the tough times. Be proactive, start cutting your spending right away as if you don’t have a choice. If things work out for the best, you’ll have a nice wad of cash you can throw into your RRSPs, or even cut a piece out to have a little fun with.
Have you ever had to deal with a massive change in your finances, how did you make it work for your life?
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