When Your Household Income Suddenly Shrinks

How to plan for those times when you or your partner gets sick or loses a job (etc.!)

By Cecilia T. Williams, CFP®, AIF®, Wealth Advisor at Halbert Hargrove.

It’s always been sage advice to “save your money for a rainy day.”  I’ve always hated the vagueness of this statement. What types of rainy days? How much for each? None of this was clear – and then March 2020 hit and our household was in its first official rainy day. We have lived through previous financial crises, but not one that found my husband completely out of work as he shut down his private training studio temporarily due to COVID-19.

As small business owners, we were ready with contingencies. We were used to his income fluctuating from month to month, and dealing with the fact that he made significantly less in months that he got sick or we took a much-needed vacation. But were we ready for him to be out of work for an indefinite amount of time?

Thankfully, the answer so far has been yes. And although we’d already done a fair share of financial planning, we also realize we are among the lucky ones: I was still able to continue working (thank you laptops, Zoom, and home WiFi).

What follows are some strategies we already had in place – and some we’ve learned along the way. I hope you’ll find these useful in planning ahead for your own rainy days.

  1. Understand your budget and review it monthly. Although tedious and not the best way to spend your alone-time together, couples (yes, both of you!) should have a clear understanding of what expenses you consider “essential” and what are considered “desired.” When tough times hit, you’ll be able to take a look at those desired spending amounts immediately and cut them before tapping into your emergency fund. Having those conversations together now, before you are in the thick of it, is critical to making smarter financial decisions in times of stress.
  2. Have an Emergency Fund. Yes, times like these are why we CERTIFIED FINANCIAL PLANNERTM professionals preach this! Saving three-to-six-months’ worth of expenses is the traditional recommendation – but remember, this is just a guideline. Based on the types of jobs you have (are they seasonal, does income fluctuate, or, a new term we just learned through the pandemic – are either of you working in an essential business?) you may need to reconsider how much to save. Not there yet? That’s ok: Consider opening a savings account that automatically contributes after your payroll each month until you hit your goal.
  3. Understand your work benefits. What types of paid leave do your employers offer? What is their sick leave policy? Do they offer disability coverage? Both partners should be informed and understand what incidents could put them in a position of losing their monthly income. Depending on the answers to these questions, you should look to revise the monthly amount you may need to stash away.
  4. Use resources! All of this sound daunting so far? Again, that’s ok. That’s why there are professionals. Find a CERTIFIED FINANCIAL PLANNER™ professional – planning for contingencies is a financial professional’s bread and butter. Let them do the heavy lifting and play out the scenarios for you so you can be informed about the likely outcomes. Use these resources to your advantage and plan for that rainy day.
  5. Lastly, remember you and your partner are a team – and this too shall pass. Even if a situation comes up that you haven’t planned for, there are always options. As long as you keep the communication open, you can work together to make the best decisions for your family.

How do you balance having the life you want to enjoy today with what you’re going to need in the future? Are you doing what it takes to enter your dream retirement? TAKE OUR QUIZ to find out.