How to Rethink Your Budget With Just One Income
Coronavirus-related job losses may force some couples to adjust to living on one salary. Here’s what to keep in mind:
The coronavirus pandemic has cost some 20 million Americans their jobs. The virus has also prompted some women to leave the workforce because of school and child-care closures.
Depending on the family’s income, such a job loss can be devastating. For those who qualify for unemployment, some of the financial pain may be delayed. But eventually, many families may have to figure out how to live on one salary instead of two.
As families cope with slashed incomes, some are forced to rethink their budgets and financial goals. Here are some things to keep in mind.
Q: My spouse recently lost a job. What first steps should we take?
A: If the spouse who lost a job didn’t voluntarily resign, they should apply for unemployment benefits immediately.
Who qualifies, and for how much and how long, may vary from state to state. Generally, if someone was working for a company and lost a job through no fault of their own, they will likely qualify, says Michael Garry, a financial planner in Newtown, Pa. Apply right away because it might take some time to start receiving benefits.
Next, make an inventory of your family’s monthly and annual expenses to the smallest details, says Rebecca Rooney, a financial adviser at UBS. Then, categorize each expense as either fixed or discretionary. It can help to numerically rate all expenses, with “1” being the most necessary. Don’t forget to add other bills such as insurance to the list.
Some discretionary expenses such as child care and second car payments may feel like fixed expenses because of our dependency upon them, but they should be categorized as discretionary if your family can realistically do without them, Ms. Rooney says.
Once you figure out what isn’t an essential fixed expense, you will be able to make educated decisions about what discretionary expenses can be cut first.
Q: What if we don’t want to change our lifestyle?
A: Be very careful about being too shortsighted and wanting to “Band-Aid” the problem by incurring high interest-rate debt, such as credit-card debt, under an assumption that your family will return to two incomes in just a few months, Ms. Rooney says.
Making sacrifices is easier said than done, but it may be crucial for your long-term stability. Incurring additional debt could lead to a downward financial spiral, she says.
Cutting expenses related to your children might seem tough, but if you’re suddenly living on one income, most of those expenses will also need a hard look, says Lauren Zangardi Haynes, a financial planner in Richmond, Va.
Q: How can couples talk about the stress of a slashed household income?
A: Know that the spouse who lost his or her job is most likely experiencing pain of all sorts—from financial panic to loss of identity, loss of the work social structure and fear of not finding another job, says Maggie Baker, a psychologist and financial therapist in Wynnewood, Pa.
The first step toward broaching a conversation about job loss and its impact on your household budget is to set some ground rules for the discussion, she says.
With an empathetic attitude, actively listen to your spouse so that you understand what they are saying and what they need, even if you don’t entirely agree, she says. Then make an action plan, even if you’re uncertain about what the future looks like.
“Anxiety needs action to minimize it and stop it from turning into depression,” she says.
The person who is unemployed can maintain confidence by not taking the job loss personally and remembering that they aren’t alone, Dr. Baker says. The person who is still employed may feel increased pressure to perform and will need support and encouragement, not only from their spouse but from all members of the household, including any children.
An employee with the Kentucky Career Center spoke to people seeking assistance with their unemployment claims in Frankfort on June 18.
Q: We’ve cut our discretionary spending but are still having trouble paying our bills. What are our options?
A: Call your creditors to try to negotiate more-favorable payment terms such as a lower interest rate or ask to defer some payments. Many creditors are offering relief programs because of the coronavirus, and some federal relief programs are available for many borrowers of student loans and mortgage debt.
You may consider temporarily reducing contributions to retirement accounts and children’s college savings accounts to free up some extra cash.
If you’re a homeowner and can qualify, consider a home-equity line of credit (even though Helocs are harder to get these days).
What advice would give on adjusting finances during a time of widespread layoffs? Join the conversation below.
If you’re forced to sell an investment in your brokerage account, consider the tax consequences when selecting which assets to sell. For example, selling an investment held for under a year at a gain will result in short-term capital gain taxes that can be much higher than long-term capital gain taxes, says UBS’s Ms. Rooney.
If your layoff is permanent because your entire industry has shut down, some more-severe belt-tightening may be necessary.
You may need to sell your home, move to a less expensive state, sell your vehicle or rethink any child-care costs, says Robinson Crawford, a financial planner in Phoenix.
Also look for ways to supplement your income. Consider part-time work if you can get it, renting out space in your house or selling some valuables.
Q: What should we consider when it comes to benefits?
A: If you lost your health insurance, be sure to replace it, says Laura Rotter, a financial planner in Harrison, N.Y.
If you have insurance through your job, a job loss generally qualifies you for special enrollment under the Affordable Care Act. Other options may include electing Cobra insurance or being added to your spouse’s employer-based health insurance.
Make sure you both have life insurance, Ms. Rotter says. If the breadwinner isn’t already signed up for long-term disability insurance, now is the time to do so, says Lorenzo Sanchez, a financial planner in San Diego. “Disability insurance is a big safety net that everyone should have in place,” he says.
Q: What other financial steps should we focus on now?
A: Review your income-tax withholding, says Andy Mardock, a financial planner in Bend, Ore.
Because of the tax code’s structure, couples who file jointly may find that dropping to one income could lower their taxes. Review withholding or estimated taxes to avoid paying more than necessary, he says.
If there is cash left over, couples should focus on building up an emergency fund. Try to save up to six months of living expenses, Mr. Sanchez says.
Once you achieve that, shift savings to retirement accounts, he says.
Reference link: PERSONAL FINANCE ( By Veronica Dagher ,June 27, 2020 6:02 am ET)
Maggie Baker, Ph. D.
Psychologist – Financial Therapist
Author of Crazy About Money: “How Emotions Confuse Our Money Choices And What To Do About It”.