If you’re expecting to have long term income loss, no matter what the reason, this post is for you. I’ve found that if I write about the financial events occurring in my life, others will most likely identify and benefit from the discussion. In a few years time, my wife will be solely focusing on college – no income from her side. Today we must mix up our game plan to ensure that when that time comes, we’ll be prepared.
Maybe you’re in the same boat, and your spouse will be focusing in on college. Or, perhaps, you are planning a long term mission trip that requires a large portion of money. Whatever the situation, get prepared for some extreme planning. Here we go!
Grab Those Primary Variables
The primary variables listed here will help you find a starting place for covering your income over time. Let’s get started!
Time. Time is one of the most important things to consider. Two things about time need to be determined: (1) how long until the income loss will occur, and (2) how long will the income loss last? Once you’ve determined the timeline you’re dealing with, it’s important to think about the other variables.
Average income lost per month. How much income will be lost? Multiply the income lost per month by how many months you’ll be without the income, and that will tell you how much to save up. Let’s say you’re going to lose $2,000/month for 24 months. 2,000 x 24 = $48,000.
Now that you know how much you’ll have to save up to prepare for the income loss, divide that number by how many months you have to prepare until the income loss hits. So, in our example, let’s say you have 16 months to prepare. $48,000 / 16 = $3,000 per month. That means you’ll need an extra $3,000 per month put into a savings account to reach your goal by the time the income loss takes place. If you don’t think you’ll be able to save enough money, you might have to push your goals further out to accommodate your savings rate. Or, find new ways of bringing in money.
Time For Secondary Variables
Less important, but still helpful, are the secondary variables. Use these if you think your situation might change while you are in middle of income loss or if you want to have a firmer foundation.
Risk. After your income loss, you’ll need to get a job. How long do you think it will take for you to secure a job? Figure this into your calculations. Remember, the math can change on you last minute, so be sure to measure risk as you run the numbers.
Change of expenses. Do you expect that you’ll be able to lower your expenses during your income loss? That’s great! Begin now and get a head start. Or do you feel that your expenses will increase? Make sure you figure that into your calculations!
Remember: It’s Only Temporary.
Even though you need to prepare for long term income loss, keep in mind that it’s only temporary. It won’t be forever. Don’t lose sight of your goals. You deserve to excel in life and in finances. Don’t give up. Plan smart, and use every resource available to you to get you where you need to be. Don’t leave stones unturned. The more you can lower your expenses and find side jobs and extra income the less painful it will be.
So, what’s your story? Have you ever had to plan for long term income loss? How did you do it? Or maybe you are simply struggling with an upcoming long term income loss and you need to toss ideas past Peter and myself. Please, leave a note in the comments and get your situation out there. We’re here to help!
Jessica Bosari says
I also think it’s a smart idea to test yourself before you take the plunge. Can you live on your projected budget for one month? If so, you’ll have that month’s savings to add to your stash. It will also give you a chance to see where else you can cut expenses, how you might bring in more money and give you a chance to make mistakes before they become financially dangerous to your family.
Peter Anderson says
I agree with that completely. Before we lost my wife’s income due to her staying at home with our newborn son, we started living on one income well in advance. It allowed us to test out the waters, see how much we really needed, and make sure we had more than enough saved in our emergency fund for a rainy day.
living on one income before you need to