A 5-step plan to help a family survive on a reduced income


By Cheryl Lock, Business Insider

Early last week, the first of what I expect to be many emails came: One of my freelance clients was going to be suspending assignments for the foreseeable future. They accounted for approximately 20% of my monthly income.

A few hours later, my husband came downstairs from his new corner office (aka the desk in our bedroom) to let me know that his company would be instituting a 10% decrease in salaries for the foreseeable future as well.

Although I knew it was coming, in that one day it became abundantly clear: We would need to do some rejiggering of our monthly budget to make our finances work until things return to normal. (Because they will return to some semblance of normal!)

My husband and I sat down to go over our budget and to establish a new, hopefully temporary, norm. We started by figuring out how much we would need to come up with to cover the differences in what we were (so far) losing. That turned out to be approximately $2,680.

Here's the plan we came up with to cover our losses, and to hopefully make up for the difference in the future:


1. Decrease personal spending

The first place we decided to scale back on was our own individual personal spending. My husband and I have a unique way of keeping track of our money - Chris covers most of our necessities (mortgage, electricity, food, etc.) since his paychecks come reliably twice a month, while I pay for things that I can mostly cover as my checks filter in (like our emergency savings, our daughters' 529 accounts, my retirement, etc.).

We also both cover our own personal expenses - clothing, entertainment, etc. - on our own personal credit cards. By cutting back on what we spend each month in that personal area, we should be able to save about $1,500 each month between the two of us.


2. Decrease funding our emergency savings

We contribute to an emergency savings account each month, and it's my job to do so, since we can put that money into the account at any point during the month. (Or even after the month is over, if necessary.)

The point of an emergency savings account is to help you out particularly during times like these, so it didn't make sense to continue funding the emergency account when we were both losing income. Instead, we decided to take the money that I would normally be putting into that account and divert it directly into our monthly needs. That provided us with an extra $1,000 each month.


3. Decrease what we contribute to our girls' 529s

It's also my job to put a certain amount of money each month into both of our daughters' college savings accounts. Although it pains me most to decrease the amount that goes into these funds each month, it's helpful, and hopefully temporary. By taking $90 from each of the girls equally, I can make up the additional missing $180.


4. Create a backup plan

The above changes should work for now, but if for some reason in the future we need more, we wanted to be sure we knew where it would come from.

There's always more money that we could "borrow" from our emergency savings or the girls' 529s, but we also have the money that's currently in our emergency savings account to fall back on.

While we hope to keep that intact if things were to get even harder, it's nice to know that we have about four months' worth of savings in there if we need it.


5. Keep track of deductions

I'm keeping track of all the money that isn't going into our emergency savings or the girls' 529s so that hopefully, once both of our incomes return to normal, we'll be able to put the money back in.

If that doesn't end up happening, we'll hopefully have come up with a plan that keeps our current emergency savings intact for future needs, and that doesn't impact our college savings plans for the girls too much.

We made a specific goal to keep our own retirement savings as they are for now (here's why), so hopefully we won't need to change that. In the meantime, a little thoughtful planning helps me feel like I'm doing what I can to stay in control.

See more at Business Insider

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