Wednesday, January 13, 2010

Adjusting to A Drop in Income

Thinking back to when our income first dropped there was quite an adjustment. My gut reaction was to make money so that we wouldn't have to adjust our standard of living. That got exhausting, more exhausting than adjusting our standard of living. So, I figured out another way to adjust to the drop in income.

A reader posted a link to this video, and Amy Dacyczyn says something noteworthy in it.

Amy said in the interview that if you track your spending, you don't need to buy her book. I think her book is full of worthwhile information, and I am thankful for it, but essentially she is right. If you write down every penny you spend, you can see where you are spending and what you can cut. If you need to cut dramatically, you will need to redefine needs.

When I evaluated our spending, I switched to cloth diapers and we dropped Netflix. We cut out all convenience foods and I learned to cook everything from scratch. I shopped around for auto insurance and we conserved energy. Now, not only have we adjusted to this standard of living, we feel better about our lives in general. The time I have at home with the kids is more valuable than the money I could earn outside of the home.

We did not dump all discretionary spending. Our entertainment is the internet, which pays for itself every month one way or another, and satellite radio, which we have on constantly and enjoy. We could afford these things in our budget, and losing them would alter our quality of life in a way we were not willing to if we did not have to. These were prioritized over disposable diapers and Netflix.

The key is to track spending. We use a debit card, so our bank tracks everything, but keeping receipts to see what we bought that we could have skipped helped to. For a while, I did the pen and paper method, where I wrote down everything, but after I got the hang of not spending, that was no longer necessary. How you record spending and what you decide to cut is different for everyone, but if you are truly interested in cutting spending, this step cannot be skipped.

45 comments:

Minty said...

I completely agree. Understanding your budget, inside and out, is the key to financial freedom IMO.

Rhonda-Jean has been blogging about this too today. :)

http://down---to---earth.blogspot.com/2010/01/managing-your-money.html

oceans5 said...

I want to start saving and be more frugal again but it just seems like something always happens and we don't stick with it. We aren't in a tight financial situation right now so we don't really give much thought to what we are spending. We used to years ago when my husband had a low income job but that isn't the case anymore. I am inspired to save now though. We need to build our savings up so I am trying to come up with ways to put some aside. Netflix isn't a huge expense for us and we absolutely LOVE it so that will stay but eating out so much and buying random things will have to stop. Or at least cut back.

One of our problems is that hubby is constantly driving and is in his car for his job. He makes stops here and there to get him through the day and if he wants to eat he has to stop. Tracking all of his expenses is nearly impossible.

Early Modern Mom said...

While we were doing the repairs to our bathroom and front door, I got WAY off on tracking my spending. To the point that I was avoiding looking, lol.

I really need to get back to intense tracking. Time to sit down with the husband again.

Emily said...

Oceans5, if he writes down what he gets, you can see what he has cravings for and buy it yourself. Then he won't be paying convenient store or restautant prices all the time.

oceans5 said...

Thanks Emily. I pretty much know what he craves ( Rockstar energy drinks) but there is definitely room for improvement. I will see if he will keep track.

nikki46666 said...

This is a very good post. And many people don't even look at their budget and get a baseline what they can and can't spend. Many times having issues later. I find tracking spending not only seeing where you cut costs, but to see where your money is going is very important. Many times my husband didn't realize he was getting coffee 3X's a day. But when you see it on paper its an eye opener.

A few years ago we experienced a drop in pay from my husbands paycheck, at the time we didn't have much to cut so in order to make up for it I had to get a part time job in addition to my full time job. Emily do you think if your family get a significant amount in salary would you consider getting a part time job or full time to fill in gaps? I feel many times not everyone can cut back anymore then they have already have and the extra income helps with that gap.

shunhuggedme said...

Heh, for you it's sattelite radio - for me it's Netflix :)

For 8.99 a month, I get a DVD and the streaming instant play.... and well, I watch 4-5 movies a week.

Emily said...

nikki46666, if my husband had a drop in hours, he would be looking for a part-time job. I could easily make up for the drop in income with a few independent contract jobs, but we would prefer that to be a short-term solution.

Patty said...

Thanks for the reminder Emily. I agree that all of the tips in The Tightwad Gazette don't apply all of the time but its the reminder to not take things for granted that helps the most. I thought we were doing a pretty good job in most areas but knew there were still money leaks. I about had a heart attack after I added up our food receipts last night! 2010, new year, new plan. Good luck everyone!

Rachel in Florida said...

Emily, so many people right now are experiencing partial or complete income loss, so this is a concern for many. We sometimes don't even realize where the money goes. My husband used to spend $14.00 a week on cokes from Sonic. He eventually switched to buying them at a convenience store and that cut it in half. Now he does not drinks coke at all, but has relpaced that with grape juice. That runs us about $6.00 a week, and is much better for him. I think failure to plan is the biggest problem people have. I have already pulled out hamburger and buns for sloppy joes tonight. My son has a late afternoon dental appt. and we have to pick my husband up from work since our other car is in the shop. If I did not have a plan in place, dinner would be a hassle, and then we would be paying for take out pizza or Chinese, and our evening meal would double in cost. I notice that working women (myself included when I worked), don't have a dinner plan, and there goes the budget.
We have a scaled down version of cable t.v. that we pay $20 a month for, compared to the full package which is $50 a month. My mom keeps saying we should get the full package since we don't go out much. But we see what we really want to see, and if we had more channels we would spend more time in front of the t.v. That extra $30 each month can go into savings. We have to travel to see our 5 grandchildren, and I would rather go see them than watch t.v. It really is putting your priorities in the right place.

Patty said...

PS-We are trying to prepare for a future drop in income by cutting back now since one or both of us want to stay home with any kids we might have. When one has this figured out they don't have to feel as 'trapped' in their work routines.

Ria said...

At the moment, I don't track my spending very rigidly, but I have been paying more attention to the money I spend and on what I spend it on. It's not a foolproof system, but it's working to save me money thus far, without feeling like I'm pinching pennies and being miserly about the whole thing.

You're right in that cooking from scratch can save a lot of money. About $40 now can buy my roommate and I enough food to last for a week, maybe a little more if we're careful, which is a heck of a lot better than the $75 or so we were averging a year ago.

My radio comes through my computer via iTunes, and other free internet radio stations. I haven't had cable in years, instead relying on what I can find online or nothing at all. Most TV shows are overrated and filled with too many stupid commercials for me to seriously consider paying for cable again.

And podcasts keep me just as entertained as TV shows ever did anyway! :)

Kari said...

Tracking expenses is key, but pen and paper isn't the only method (or necessarily the best option for everyone).

Some people might want to consider using a financial software package like Quicken or QuickBooks (if you operate a small business).

We've been tracking expenses electronically for about 11 years now and find that to be a better solution because we can also categorize expenses, create budgets, and compile data for tax purposes.

JennyWLS said...

We used to track things on the back end, after the money was spent, and that was working well for us. Once we started really following the Dave Ramsey plan it was a HUGE eyeopener for us. Now we plan every pay period for every penny of income we have coming in and it's so nice and easy.

At one point our combined income was pretty close to $70,000/yr and that was just me, my husband and one kid and that was when we had car loans, credit cards, and a ton of consumer debt out there! Now we live on nearly half of that and we are inching our way to being completely debt free (no new debt in nearly 4 years!) and we are much happier in our scaled down lifestyle.

One of the major shifts we made in our budget is we went from giving $10/week to our church to giving a full tithe. It used to be a scramble every week to come up with that $10 because we were not prioritizing God in our lives first. Now that we pay HIM first, we always have plenty of money to pay all of our bills and take care of our family. He promises us he will provide for all of our needs, and we have experienced this so many times over since we have been joyfully following His plan.

Jenny
jennywls.blogspot.com

Teaching Money to Kids said...

We love interenet radio too. I love being able to skip songs...
We have found cutting expenses easier, if you don't try to tackle the whole budget a t once. If each month, you can cut out something more, then it seems less painful.

Martha said...

After losing my job last August I decided to not look for another job and be home instead. It took an adjustment - mainly a mental one to not spend the money. When we had two incomes we just bought whatever we wanted. Now I take a look at something I want to purchase and I ask myself if it is worth giving up the freedom I have at home. In other words, do I want to trade my stress free life for a job just so I can buy something. NO, No, NO!!

We had to ramp up the savings this month as I knew we could do better. We lowered our Netflix to one dvd at a time and it will save us $5.00 a month. We are considering dumping our land line and it will save us $10.00 a month. It is just as Amy D. says. Little things do add up.

I am trimming our grocery budget. Emily your post on buying flour based products being a waste of money really spoke to me. I am making everything I can make from scratch.

We want to get as much money into savings as we can for an emergency fund and also to put more money into our retirement account.

It is a lifestyle change. Amy D. did make one point that is pretty profound - if we did this during the good times then we would be able to weather the bad times. Sounds like some pretty good advice that my grandmother would have given.

Clisby said...

I'm not convinced that step can't be skipped - although I agree it's a worthwhile step to take. It's been a long time since I read "The Millionaire Next Door", but if I recall correctly, the authors said the wealthy people they looked at generally followed one of two strategies:

1) Keep track of all expenditures over a period of time, set up a detailed budget, and follow it.
2) Decide how much you want to save/invest, take that off the top so it's no longer available to you, and spend the rest. No detailed budget, but if you don't have the money for something, you can't buy it.

I can see how either would work, and probably different personality types would prefer one over the other.

AT said...

"The time I have at home with the kids is more valuable than the money I could earn outside of the home."

Amen!

kelly said...

Have you thought about dropping the radio and using that money toward going to the laundry mat? I think actually using a washer/dryer would be more sanitary for your family. Washing your clothes in that tiny washer with your diapers can not be healthy for anyone.

Megan said...

oceans5...is your husband my husband's long lost brother? My DH spends a lot of time in a vehicle during the day too, and his love of Monster energy drinks drives me batty. At least he switched over to the low carb/calorie ones, but I hate the artificial ingredients. He's a grown man though, so I let him be. I've came to the realization that he really loves those drinks and he'll buy them at a gas station if I don't put them in his lunch, so I buy them by the package at the store (Wal-Mart is the cheapest, as much as I hate them.)

I do pack his lunch everyday though, just because he gets hungry and will buy food if I don't. He has a little cooler that he sits on the passenger side, and he practically eats all his food out of that cooler. I let him have input on what goes in it. We're not on a very tight budget either, so I really feel the need to police his eating, I just find it reduces quite a bit of cost when I can buy foods at the store in bulk compared to those outrageous gas station prices. He generally keeps $20 or so dollars on him for lunch, if he wants to stop and get something else, but that isn't often anymore. I think he actually appreciates the convenience of it.

morethanamom2four said...

It's amazing how fast all the little things can add up. Our biggest drain was eating out. Before my husband lost his job and things went south, we would spend almost $1000 a month just eating out. No, I didn't type an extra zero. It actual disgusts me now how much money we wasted. We could have had a nice fat savings account when he lost his job.

Penniless Parenting said...

Ya know, Emily... I don't keep track of my every expense. Because I know that no matter how much I cut, there just isnt enough money to go around. Our income doesnt cover our expenses, and our expenses aren't even so high. What I do try to do is cut back where ever I can, (and if you look on my blog, you'll see how I do that), but just my knowing exactly how much more we're spending than we're bringing in... it just depresses me.
And taking a job... well, my earning potential is very little because of some reasons. And most of what I'd make would go to pay for childcare. And then I'd be too tired to do most of the money saving tips I currently do.
People tell me that either my husband or I should learn something, get a degree... and while that sounds like a worthwhile goal, and it really is one... it would take away from my husband's working hours, or it would require me to pay for childcare... and its just not doable. People say "OH do it, it'll be a little tight but it'll be better in the long run? A little tight? If things are already a LOT tight and I'm doing anything I can to cut back, how on earth can I manage if it gets a "little tighter" than a LOT tight if my husband works fewer hours.
Any readers or emily have a thought on the matter?
www.PennilessParenting.com

Carla said...

When I was pregnant with my first child 8 years ago, I had every intention of going back to work. I was the breadwinner; DH made about half as much as I did at the time (we both worked retail but I earned more). I was terrified going on maternity leave because I didn't know how we would make it. We had talked about me being a SAHM but DH was supposed to of had a better job by the time we had kids; going back to school didn't help him and there were (and still are) no jobs in the town we live in. We had no intention of moving away either. So 8 years later I'm a SAH-homeschooling mom, DH still works very part time retail and we're doing fine :). All our needs and many of our wants are taken care of, we tithe 10% and give to charity, we share greatly of our abundance and I am so grateful to be in the situation we are in now. I see people who make 6 figures struggle because they don't live within their means while we are barely in the 5 figures living an abundant life :)

SoMo said...

We have had a significant drop in income and had to make some hard choices. We don't do date night anymore and we are changing our kids from a private school to a Catholic school. I was very against changing my daughter's school, but with my son entering school this fall it would be very expensive. I think I have found a school that will give my kids a good education at a more reasonable price.

I have been struggling with other cuts, like cable. We pay too much, but it makes not going out to movies every week a bit more tolerable. We haven't totally cut eating out, but we are smarter about it and don't do it as often.

We have a budget and I make a weekly menu, which has helped a lot with the groceries. My husband's best solution to our income problem is to make more money. Since he is self-employed it is all in his power to do so. I have considered getting a job, but not if I have to put my baby in daycare. That is just something I don't want to do. Besides, daycare would cut into any income I would bring in.

nepamom said...

My problem is getting the hubby to understand this. His opinion is that our income isn't enough so why bother with a budget..."there isn't any money to budget". I don't understand his thinking. We certainly do have an income and a rather decent one for this area and his type of job...we just have to use it more wisely. "We" being the key word there. I buy store brands, clearance rack and thrift store...plus I nursed our youngest successfully and made his baby food from fruits and veggies we had anyway. I make from scratch as much as I can and try to figure out ways to cut back on utilities. Unfortunately, he has to have store brands and new from the store everything. He won't consider cutting back on some of our utility bills or sacrificing on some of the entertainment type stuff. It gets frustrating.

I love the idea of "leading by example" but sometimes people still don't see the difference.

http://treasures4moms.blogspot.com

simple in France said...

I must agree. For years, we've kept an excell spreadsheet of EVERYTHING we buy in a month. We set it up in categories. This can really help you make decisions about how you WANT to spend your money because it shows you how you are ACTUALLY spending your money. Years ago, we nixed having coffee out, for example. We also noticed that going to the grocery store once a week was cheaper than going several times a week because we 'forgot something.' That's because we'd always pick up something extra when we went for just one item. We wouldn't have recognized these things had we not analysed our budget.

And, the great thing is knowing exactly how much it really costs you to live.

nepamom said...

kelly...maybe, I'm out of line but I don't see how using a "real washer" would make anything more sanitary. The washing process is what matters not the equipment used to do it. The family is probably exposed to more baby waste by simply holding the baby than by wearing clothes washed in the same washer as the diapers.

(and Emily...feel free to not post this if you think it would cause trouble!) :)

thesavedquarter said...

I'm going to have to disagree with Amy, which is surprising since I'm a Tightwad devotee! I think tracking spending is crucial, and if you want to get control of your money, you have to know where it is going. BUT! I think that if you don't know how you can cut costs, what is easy to DIY, how to be frugal, it does little good to have it tracked. You might see that you're spending more than you want on clothes, for example, but not know how to maximize your clothes budget. The tips and techniques make all the difference.

Tea Time Consultants said...

Good thinking and planning.

http://www.tipsfromtipsy.blogspot.com

Lilly said...

Penniless Parenting, I don't know where you live, but are there any assistance programs where you live? We've had a tough year financially (my husband was laid off from his job) and during this crisis we decided it would be best for my family if I went back to school. In the long run. We had no idea how we would afford it, but we knew that if we did, one day we'd be a lot better off. I started looking at options and there is a lot of help available for people who look for it (although I recognize this could vary a lot by location). I had no idea how much help I could receive until I started looking. Now I have 100% of my daycare paid, lots of student loans with the option of having them forgiven if I work in certain understaffed fields (and these fields are the ones I wanted to work in anyway), and I was receiving unemployment benefits while I was going to school because I was working to increase my employability (is that a word? lol). There was even another government program I looked into (but didn't qualify for) that would have paid my tuition and living expenses as well. Grants, scholarship, and bursaries can also help.

If you looked into it, you might be surprised at the amount of options available to you. I was.

Bubblej said...

Although I am living on 2 and a half times Emily's income, I can still relate (remembering that the cost of living where I am is rather high). I decided to go to uni and study to be a teacher. I love it, and I wouldn't change my new direction for the world, but going from $700 a week to a little over $200 was hard. My boyfriend makes enough to get us by and we are able to save my wages, for the most part, but it was still an ajustment. I am now tracking my spending like a hawk (my boyfriend calls me the Minister of Finance) and making things from scratch, which I have never done before. We are trying to save money for our OE in a few years, so saving is a priority.

The main cut was to our shopping budget. I now only buy meat from a meat supermarket, unless there is a super mega sale on at the supermarket and fruit and veg comes from the fruit and veg shop. The quality is better and the prices are much much lower then the supermarket.

Emily said...

BubbleJ, my husband calls me Minister of Finance, too, even though we don't have ministers in the US. (:

Rachel in florida said...

Penniless Parent (and others), Have you thought of working on weekends only? This is what I did when my kids were small. I worked 16 hours at a convenience store. My husband was home with the kids, we did not have to pay daycare. I worked from 6-2, so we still had family time in the afternoon and evenings. This was 20 years ago, and at minimum wage I brought home $120 every two weeks. I used this for groceries. If a family really needs the income, this works well. My daughter, the one who did not go to day care, is now a young mom. she waitresses 3 evenings a week. She goes in when her husband comes home. Day care costs for a 3 year old and a 1 year old would make a daytime job pointless.

morethanamom2four said...

Penniless, I go to school online through the University of Phoenix. I started when our house was foreclosed on because I knew I never wanted that to happen again. I will be done at the same time my youngest will be starting school and I'm taking elementary education, something I love! Honestly, it's not too hard to juggle while being a stay at home mom. Also, most of it is covered by grants, the rest by loans. I haven't paid a dime into it yet.

Our Family Is His said...

Washing clothes in the same machine you wash cloth diapers in is not unsanitary. I do it in our washer and dryer and we are very healthy. If a child had a blow out in his outfit, or threw up on his shirt, or peed out of his diaper, would we just throw those clothes away? No, no one would think twice about tossing them in the washer. You don't put poop covered diapers in the washer. You shake them over the toilet or use a sprayer, or other prewash technique. I use the shake method as our diapers don't seem to have an issue with sticking.

Guinevere said...

We might have to start tracking our spending. I tend to be in the second school of thought that Clisby mentioned. While I enjoy investing and saving, I don't like to spend a lot of time thinking about my purchases and budgeting. It feels confining. So, we've always done the "pay yourself first" method of putting aside money for bills and aggressive savings, and then just spending the rest of our money freely. To me, this has always felt freeing -- I don't have to worry about a budget, but I also don't have guilt because I know I'm saving for the future.

Lately, though, I just feel like we're spending more than we need to. I'm pretty sure part of that is having just bought a house (houses are expensive!), but I'm craving a greater sense of control, I guess. I'd like to save even more.

Nastiassia said...

Do you have a good recipe for homemade energy drinks, like Rockstar or Hitman? I drink these every couple of hours and guess i spend $12 a day on these!

Erin said...

Can I ask an unrelated question? I've been reading your blog some, and noticed you are very adamant about being ministers in impoverished areas. I'm curious (and not being rude at all, so please don't take it that way) what made you and your husband feel called to it?

sweetjenna said...

Emily - Not on topic for this post, so feel free not to publish, but I just made your tortilla's tonight and took your advice and let my son "help" and it worked perfectly! He played in the flour while I rolled out the dough and he had a blast helping me! If you have a moment, check out my blog and you can see a few pictures I took of him helping.

They were delicious BTW and Evan loved eating them too!

Thanks for the recipe.

Jenna

JennyWLS said...

PennilessParenting, we were in a rut where we were making pretty decent money, but neither of us had a college degree. Well when the going got tough, we ended up at a crossroads, and I was very interested in attending college, so I enrolled in an accelerated degree program through a Christian college. I earned my BS in Management in about 18mos (I already had an AA degree) and I have quickly moved up the chain at work and have gotten several raises, bonuses, and a promotion since getting my degree in 2006. My husband is a SAHD for the most part, and while our situation is not ideal to where we want to be long term, my job pays our bills and provides AMAZING health insurance to our family, which is a huge blessing since we were blown away when our second son was born with a congenital heart defect.

Going to a Christian college made all the difference to me and I can say that I have grown tremendously in my faith and in my career by going that route.

It was a huge sacrafice for me to set aside those 18 mos to finish school, but the benefits both financially and spiritually have more than returned on my time investment.

Jenny
jennywls.blogspot.com

doggie said...

if you use the net to stream your music you can get for more music that is higher quality then xm. between pandora and aol radio and itunes there is a ton of stuff free. finally got my wife to drop it. then you could get the 8.99 netfix and save almost 1/2 your paying for xm. 19 times more entertainment for 1/2 the cost.

Penniless Parenting said...

Lilly, I live in a poor country in a poor area. In my country there are programs (but NOTHING like in the US). I'd get some assistance with some of the childcare costs, but not too much. And I can get schooling free. Which is why I am considering it. But my husband can't get help with anything financially (his status in this country is different than mine) and it would just cut our incredibly small income anyhow....

Justine said...

Yep. NPR had someone on it earlier today with a finance book about a plastic free diet, and told people to look at their accounts, and they will find their priorities.

My husband and I are now living in a small one bedroom and I make most things from scratch. While it was an adjustment at first, it is so much less stressful and in turn we have become more humble are better servants.

Anonymous said...

ditch the satelitte radio and log onto pandora.com...it's internet radio for free..commercial free...and artist specific!

try it out!

Cheapskate said...

I am really struggling with debt and am very curious about your money saving ways. I have just started tracking every penny and found that creating my own spending blog has really helped me. Currently I am trying to pay down around 48k in cc debt.

http://debtrunsme.blogspot.com/

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