My Wife and I Used to Spend Every Penny, But Developing a Plan for Sudden Job Loss Changed the Way We Handle Money

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• My partner and I have already planned what would happen if one of us lost his job.
• We started by getting rid of as much debt as possible and reducing our fixed expenses.
• Then, we increased our savings rate and diversified our sources of income.

In 2014, my future wife and I had just started living together. I had my first “adult” job as a teacher, earning triple what I had in college. My partner was already more established in her career as a therapist and earning a decent income.

We quickly combined the two incomes to see what we could afford in terms of apartment, car payments, food, memberships, travel, and entertainment. It wasn’t “paycheck to paycheck” in a stressful way, but there was nothing left to save at the end of the month, and investing was still an unfamiliar word in my vocabulary.

Then the universe threw some tough stuff at us. Physical and mental challenges threatened both our ability to work, and since we each had a source of income, we faced the possibility of becoming a single-earner household on short notice.

This threat prompted us to act and prepare as much as possible for this eventuality. We considered both our expenses and our income, as we assembled our defenses against any potential storms to come.

We started by cutting expenses where possible

When we looked at the income we would need to cover all of our basic expenses, we realized that our consumer debt and student loans took up a significant portion of our take home pay. The first item on the agenda was to reduce our debt as aggressively as possible, eliminate or reduce monthly bills/subscriptions, and discuss what could be cut from our budget to bring us back to the bare minimum.

Creating a plan for what would be cut, how we would shop, and where we could find extra money was an important conversation for us. By opening communication early and forming a plan, there will be less panic if the time comes when we need to scale back significantly. Lowering our debt, bills and subscriptions meant there were fewer fixed expenses to worry about if our income levels dropped.

We have increased our savings rate

Paying down debt, building an emergency fund, and starting to invest for financial independence meant we had to better manage what we already had. “You Need a Budget” (YNAB) is the software we turned to for co-planning and co-spending. Through the app, we were able to determine how much we wanted to spend in each category and ensure we were paying ourselves first to prepare for the future.

Our emergency fund goal started out at $1,000, but we quickly realized we were going to need a lot more to help smooth out a job loss. We are aiming for three months of normal take home pay as the minimum we would need to allow us to find alternatives and new streams of income should one of the existing ones fail. We’ve heard up to six months or more as the recommended amount for families, but that seemed like a comfortable position to start with, especially since my job as a teacher is one of the most stable you can have. in the world of today. .

The biggest change for us was making our needs significantly lower than our take home pay. We achieved a savings rate of around 20%, so we knew that if a job loss occurred, we could immediately stop saving. The gap we would need to fill to cover our normal expenses wouldn’t be huge, and we would have an emergency fund to help bridge the gap.

We have diversified our sources of income

We already diversify our investments so that if one type of asset or sector is down, the others will hopefully be up to help reduce the impact of the loss and maintain portfolio stability. Income is no different.

We wanted to have multiple streams of income from independent sources, so that if one disappeared, we would have others to rely on to cover our needs. Our full-time jobs still made up the majority of our income, but we also added things like lacrosse umpiring, creating digital resources for teachers, selling artwork, freelance writing , running online courses, public speaking and publishing a children’s book.

At one point, I was working part-time as an entrepreneur for a non-profit organization, creating a personal finance program and resources. At the time it was 25% of our take home pay and when it ended during the pandemic it was a huge blow to our finances. However, as this was just one of many sources, there was still enough to absorb the blow while we looked for ways to increase our other sources of income.

Thinking about what we would do if we had just one income has changed our lives. While dwelling on Black Swan events isn’t fun, going through “what if” scenarios with your partner, family, or in a journal can give you great peace of mind and shine a light. weaknesses in your finances.