‘œAnnual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.’ ‘“ Charles Dickens

Two weeks ago, my wife’s long-term contract ended.   It wasn’t entirely a surprise, as the company for whom she was working had been struggling.   We’d been making spending cuts and trying to increase our savings, but we weren’t entirely prepared.   Our monthly budget was based on our business generating profits from two working adults.   Now that only one of us has a contract, our business’ monthly gross receipts have been cut nearly by half.

Suddenly, our monthly budget was out of balance.   Our expenses exceeded our anticipated income.

This is, unfortunately, not the first time I’ve found myself in this position.   The first was back in the days when I was running my first business and ultimately ended up filing for bankruptcy.   It happened again when my wife and I found ourselves separately, and then jointly, unemployed.   Since we started our business, it’s happened at least twice: once when business was slow, and again when a formerly good and trusted client didn’t pay us for a substantial amount of work.

In a perfect world, our budget would be based on the assumption of only one of us working so that we could bank the rest.   Though it’s a laudable goal, it’s not always possible.   Our two largest expenses, our mortgage and health insurance premiums, add up to nearly $2,600 per month.   Add to that the additional burden of self-employment taxes, a car payment, utilities, food, miscellaneous expenses and a down economy, and we’ve found one wage earner can’t always bring in enough.

When we first got the news that my wife’s contract ended, we weren’t worried.   We had nearly four months’ living expenses in the bank. With my contract still going strong, we could survive her being out of work until the end of the year.   We figured we’d make some cuts, she’d look for another gig, and we’d weather the storm without much of an impact on our daily lives.   It was bad news, but not the end of the world.

Then we got the really bad news from our CPA: not only did we owe money on our 2008 Federal and State taxes, we were also going to have to come up with more than we expected for our 2009 estimated quarterly taxes. We were shocked to learn that our entire emergency fund would have to be sent to the Federal and State governments.

Suddenly, my wife’s lack of work changed from being an inconvenience to a full-blown crisis.   We live in a state that has double-digit unemployment, so we can’t bank on being able to find new contracts right away.

Since we don’t know how long we’ll be managing with half our income, we made a number of changes to quickly bring our budget back into balance:

1. Trimmed existing bills.   I contacted every one of our vendors and service providers to see if there were ways to reduce our costs.   I contacted our telephone and cellular providers, and learned I could cut our bills in half, simply by switching to a different rate plan.   Our gas bill could be trimmed by 20% because our 13-year-old daughter is eligible for Federal adoption assistance.   Our bottled water delivery bill (necessary because our tap water is undrinkable) was cut in half when I called to cancel the service.

2. Cut unneeded services, or found cheaper alternatives.   I fired the gardener, who wasn’t doing a good job, and hired someone else (because my wife and I are both terribly allergic to grass) who would do more work for the same price.   Two years ago, we disconnected our satellite TV service as a money-saving measure.   We switched Internet providers for our business, shaved a third of the bill and managed to increase our connection speed.   This also enabled us to cancel our backup Internet service since our new provider is more reliable and has better customer service.   I canceled my guitar and piano lessons, our downloadable music subscription and slashed our monthly video rental budget.

3. Stopped eating out.   This one change has turned out to be one of our biggest money-savers.   Dining out is expensive.   When we were both working long hours and bringing in a higher income, the convenience seemed worth it.   Now that my wife isn’t working, she’s taking on a larger share of the cooking.

4. Planted a vegetable garden.   Although our yard is tiny and probably won’t yield much produce or be a big money-saver, this is an incremental change that may save us a bit at the grocery store.   If nothing else, this will give us an opportunity for free exercise and family time.

5. Halted additional principal payments on debt.   Rather than paying extra on our home mortgage and auto loan, we are making the minimum payments.   Fortunately, our credit cards are already paid off.

6. Converted to a cash-only economy.   If we use a credit card for something, we immediately write a check to cover the debt.

7. Prepared items to be sold, just in case.   We have two older, semi-running cars that could be sold if they were in full working order.   We are making the repairs so that these cars can be sold quickly if our financial situation becomes worse.

8. Accepted smaller projects and odd jobs we’d normally skip.   Although we tend to look for larger, longer-term projects, we’ve suddenly taken on a variety of smaller jobs to try and make up for some of our lost income.   Last week, my wife shot a series of senior portraits for a friend’s daughter, earning her some quick cash and saving her friend money.   She’s also taken on a few writing projects, and we’ve accepted a few smaller technical projects we would have normally turned down.

9. Told everyone we know that we are looking for work.   Prior to my wife losing her contract, we frequently turned away potential clients because we simply couldn’t take on any more work.   Now we are telling everyone, even clients we previously turned away, that we are available.

I’m optimistic that these changes will see us through the crisis.   I have every reason to believe that my wife will eventually find work and that my contract will hold.   If it turns out our income becomes more unstable, or we haven’t made enough cuts, we have sever other plans of last resort in mind:

  1. Discontinue the bottled water delivery and yard service.
  2. Disconnect our telephone land line and go cellular-only.
  3. Agree to share one cellular phone.
  4. Take on a roommate.
  5. Sell the car with the outstanding loan, since it is worth more than the amount owed.
  6. Sell all non-essential items, put our nice furniture in storage, rent out the house, and move back into our RV.
  7. Apply for food assistance at the local food pantry.

Although a growing number of economists are starting to predict that the bad economy could recover as soon as this summer, we are making big changes now.   Although we hope otherwise, we are planning that my wife will be out of work for longer than we’d like.   Rather than taking a “wait and see” attitude, we are making immediate cuts to shrink our budget to fit the income that’s left.

Next in Series: Better Decisions

Photo credit: stock.xchg