How to Survive a Significant Cut to Your Salary
I'm in Michigan and underemployment is epidemic here. It is absolutely imperative that while things are good, we are not functioning as though it will go on forever. We have to enjoy it, but do some things to protect us if the bottom falls out of that terrific job.
1. Don't ever use credit cards unless it is an emergency. And, I mean, an EMERGENCY: the furnace breaks, your only transportation to work breaks down, etc. Buying Christmas gifts is not an emergency. Buying clothes or paying for a vacation is not an emergency.
2. Instead of buying that flat screen TV or gaming system with your next tax return, pay down debt or put it into savings for the aforementioned emergencies so you don't have to put them on credit cards.
3. Read, read, read as much advice from financial advisers about building up a reserve and getting out of debt. There are some terrific articles out there. Some of the suggestions are tough to swallow and you may find yourself feeling a bit defensive about some of the advice, but try to keep an open mind.
4. Pay down debt as fast as you can. Put as much extra on credit cards and vehicle payments as you can. List your debt and pay extra on those debts you owe the most interest rates on. When they are paid off, dedicate the payments you were making on those to pay off the next one until they are all gone.
5. When you buy a house, buy less than you can afford. If you can afford a $1000 payment and you get a house with a $700 payment, that $300 per month you've saved can get you out of debt or buy a car for cash eventually.
6. If you are downsized and find yourself bringing in half of what you need to live, have a family discussion about what to do about it: talk about Christmas and plan an inexpensive solution instead of buying piles of gifts, decide what perks you can live without: ie. cable tv, eating out, shopping for clothes, or toys. Put a hold on all spending except absolute necessities: mortgage, insurance, food. I think it is important to teach kids that they don't need to have everything they want. Kids that grow up getting new everything and never have to settle for used or sale items will have a tough time weathering a financial set back. Teach them frugality early on, and they will will jump on the bandwagon with you when it's time to make changes.
7. Food has gotten so outrageously expensive! It takes effort and time, but read all you can about feeding a family on the cheap. You can cut your food budget in half if you don't buy convenience foods or junk food. Every thing you buy should be a lot of nutrition for the buck.
8. Talk about it. Don't try to be "brave" and shoulder the burden of a cut in pay yourself. Sit and make a priority list with your spouse. Have a heart to heart talk with your kids if they are old enough to understand.
9. Get rid of your new vehicles with the huge payments and buy used vehicles. Drive them until they are dead. After they are paid for, continue to pay yourself the car payment, so the next time, you will have more to put down on the vehicle. Buy used. Eventually, you will be able save cash for a car and you won't have a payment. It takes self discipline, though and is tough to do.
10. Plan ahead so you never have to rely on bankruptcy. Of course, I think there is a time and place for bankruptcy; that's why it's there. But I think bailing someone out because they couldn't live within their means when times were good is going to destroy us all.
You will get through this. It is exhausting to be in crisis mode for an extended time, but if you plan for it before it happens and then take one thing at a time and stick together, you will come out of it stronger and more appreciative of what is important.
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