Adjusting the Budget for Job Loss, Planned or Unplanned

Do I need to find another part-time job?

Job loss was one of the biggest realized fears that crept in after the COVID-19 shut-downs in March of 2020. Many people were forced to adjust their lives and their budgets due to being furloughed or laid off with short notice. Thankfully, along with the loss of those jobs came higher and extended unemployment benefits, economic stimulus packages, relief from eviction or foreclosure, and fewer opportunities to spend money. Who knew that after mass lay-offs around the country that now, a year later, there’d be a shortage of labor, not jobs! A large percentage of the workforce learned how to adjust to one income or a lower income and have now chosen to be unemployed, with or without the government benefits.

In my situation, the business my mother and I started about 15 years ago managed to stay afloat through the pandemic, but the effects it’s had long-term on both of us, as well as our client caseload, may lead our business down a path of never fully recovering. We are considering closing our family therapy practice for good. This is a combination of forced and chosen job loss, for which I now have to adjust our family budget.

Over the many years, I’ve slowly reduced the number of hours I put into the business and also the amount of my pay. I have a very flexible schedule and work exclusively from home, which has been such a blessing at the current stage of my family. I still have two preschoolers at home with me three days per week and two older children with very busy extracurricular schedules. The paycheck has been smaller than when our business was at its prime and our caseload was overflowing, but the extra money has been essential to getting us ahead in our journey toward FI. We’ve been able to contribute the full amount of my part-time income to investing and charitable giving, while meeting all of our living expenses with my husband’s salary. Now, we will have to make cuts as my mother and I move closer to closing the doors to our practice for good.

My total take-home pay is currently $1,910 per month. $1,700 of that goes toward my ROTH contribution (averaging out to $500/month but invested as a lump sum at the beginning of the year) as well as my husband’s and my combined contribution to our joint brokerage account ($1,200 automatically invested into VTSAX monthly). The other $210 is set aside to make charitable contributions of our choice each month. This giving is in addition to tithing.

The last thing I want to do is cut out our investing or our giving when I lose that monthly income. Whether we’re a one-income or two-income household, we still plan to hit FIRE by 50 (or hopefully sooner). Continuing our current rate of investing is essential to meeting that goal. So, I now have to make some tough decisions about where to reduce our spending or whether to take on more work to replace that income.

I can also take into consideration the cash flow we are receiving from our rental properties, if that’s where the money is best served right now. However, we’d ideally like to put all our cash flow this year toward reserve funds or future real estate investing.

So, I decided to dedicate a slow, rainy, unseasonable cold morning at home to analyze our current expenses and determine where I can “find” as much of that $1,910 per month in our budget. There is a strong possibility that my final paycheck will come in June, so we will need a total of $11,460 for the last 6 months of the year to make up for the loss. That’s a big chunk of change!

Our annual budget was my first place to look. I discovered that I had budgeted some overages in our savings categories above the contributions mentioned above. Because we already have a 12-month emergency fund, plus money set aside to buy our next two vehicles in cash, I decided to re-allocate the $1,000/month going into our online savings account. That adds up to $6,000 over the 6 months that I’d be without my part-time income.

Then, I reviewed what I had budgeted for a new life insurance policy this year and what we actually spent. After reading about life insurance options, listening to a couple podcasts on the topic, and doing some comparison shopping, we were able to secure a term life policy for my husband for much less than we had budgeted. We had $860 set aside for that new policy (as a supplement to the one offered through his W-2 job), but we only spent $380 and paid in full. Therefore, we had a surplus of $480 in that category. Additionally, we’ve already pre-paid for all of the kids’ summer activities and camps, as well as the registration fee and August tuition for our preschooler, leaving us with no child care costs for the summer. We will not have to pay the $749 monthly preschool tuition for three months, and we can remove the $300/month we’ve been budgeting for kids’ activities and camps. That leaves us with another $3,147. A few additional cuts include a decrease in cell service fees for a savings of $100/month by switching to Mint Mobile; cancellation of Camp Gladiator membership for a savings of $79/month; and cancellation of private horn lessons now that our eldest daughter will be receiving additional band instruction each day at her public high school for a savings of $100/month. These three changes add up to $1,674.

Also, I’ve resolved to going back to at-home haircuts for all the males in my household, which amounts to a savings of $85/month. That will provide us an extra $510 through the end of 2021.

The total amount “found” in our annual and monthly budgets to make up for the loss of $11,460 in income is $11,811!! I was able to complete this analysis in less than half an hour using the detailed spreadsheets I keep for our family’s income and expenses. With the conclusions drawn, it will not be necessary for me to find other part-time work to replace my lost income for the second half of the year! We can continue making substantial progress toward our FI goals without sacrificing what’s important to our family or seeking additional sources of income.

Many people fear that having detailed budgets and tracking expenses will limit their spending and, therefore, their happiness. However, I find that these practices provide the opposite: freedom! And for me, freedom with my time (and my family’s time) is the ultimate goal of pursuing financial independence.

If you find yourself in a similar position, either preparing to leave your current job or fearing that you might lose yours at any moment, I definitely suggest tracking every dollar you spend, if you haven’t started doing that already. Once you have a framework, finding places to make cuts is pretty easy.

If you’re already a great budgeter, think of your income loss as a total dollar amount through the end of the year instead of what you need to cut or save each month. Recognizing that there are annual expenses/allocations that might be easier to cut than your monthly ones might give you a little room to breathe (and spend) when the expected or unexpected happens.

For more specific ideas on where to make big cuts, check out 9 Ways to Save this year.

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