Living on one salary?

I’m worried with putting so much away to DH’s retirement this year (maxing out the 403(b) and the 457, possibly a Roth) that we’re setting ourselves up so we won’t be able to save enough to live on next summer meaning a very tight August or September.  The requests have already been made so going back would be difficult.  (In retrospect, given the US problems, perhaps the 457 was not the best choice and we should have gone for the mortgage… more on that decision Oct 1st.)

The rationale is that if he loses his job, we’ll have to live on my salary alone.  We might as well get used to it now, so it doesn’t hurt so much then and the sacrifices to fund retirement, pay off the house etc. won’t be as deep because we’ll have done a lot already.

Is it ridiculous?

DH loses job… then what?

Should we just assume it will be short term unemployment and have a larger emergency fund?  (I can’t figure out if he would be covered by unemployment… I kind of assume not as he’ll be given a year contract after being denied tenure.)

Will he really be bringing in no money?

We’d really like to allow him to use the time as an opportunity to try things out.  Maybe work on entrepreneurial or consulting projects that might not pay out in the short term (and that don’t have their own retirement plans) rather than having to take any job he can get in this small town.

What if we use the job loss as an opportunity to move to a city?  Our salaries will probably go up, but of course the cost of living will as well.  But on net, we would probably be making more money.

At the latest round of conferences, I was strongly encouraged to apply to a couple of jobs close to family (but away from the weather I prefer).  I wasn’t expecting that.  A job offer would mean a nice raise for me, whether we ended up moving or staying.  We could go the other direction and DH could find an industry job, while I follow for a soft money position.

So I don’t know… worst case scenario we drop down to just my (raise-free) salary (and perhaps have small start-up costs for DH’s next career stage)… but is that worst case scenario really what we should be planning for?

On the one hand, planning for the worst allows us freedom.  We won’t be stuck if the house doesn’t sell or DH can’t find a job he likes in town.  On the other hand, perhaps we’re cutting things down too much for an unlikely future.  Or perhaps it is all too likely.

A final question is what are we sacrificing… what are we cutting that we would otherwise not need to cut.  The short answer is, I don’t really know.  The easy answer from our financial fire drill is savings and charitable contributions.  But that answer is still not satisfying.  And also isn’t sustainable long-run.

What do you think?  What do/would you do when you see a potential jobloss for one partner on the horizon?

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23 Responses to “Living on one salary?”

  1. Kellen Says:

    It’s a scary thought, and imagine how terrible it would be to have job prospects in another city, but be unable to afford to move to that job, for whatever reason.

    The right answer will be whatever allows you to sleep better at night now.

    Find out when he’ll qualify for unemployment. Also, despite hearing stories about so many people facing long-term unemployment, as yourselves if DH is in a stronger industry, and if maybe he’d be more desirable than other people in his industry. Also, how flexible are his skills – can they be applied to several industries? These should all affect how likely you think long-term unemployment will be for him.

  2. First Gen American Says:

    I guess the question is when will you find out for sure about the job loss? What we did is we saved more emergency fund for a little while and then once we knew our jobs were “safe” (at least for the short term), I paid down the mortgage like mad til it was paid off. I don’t regret that choice one bit. It gives me tons of flexibility now. I’m also a lot less stressed about work which was an unexpected side benefit. If I lose my job, I would be devastated but I hope I could use it as an opportunity to do something different and there would not be a super rush to jump into the first thing that became available.

    I also have a good chunk of my emergency fund in savings bonds, so if we’re lucky enough not to have to tap it by continuing to live below our means, then hopefully it can eventually double as a college savings plan (of which I have very little in right now).

    • nicoleandmaggie Says:

      More than a year from now… about a year and a half. (And then he still gets paid for a while.)

      We purchased our mortgage on the basis of my salary alone, so it doesn’t replace much of DH’s income if we pay it off (in fact, principal + interest is only about $14K/year, which isn’t nothing, but also isn’t like we have no worries if we just have that paid off, especially since the principal repayment is a form of savings).

  3. bogart Says:

    Well, we faced a different version of this 1.5 years ago, ours involving one of us leaving the workforce by choice and starting to collect a pension. I know, I know, pull out the tiny violins, but this does mean that we have maneuvered a more time/less money scenario though not the same one you are contemplating.

    In a manner exactly opposite to what you did, we refinanced our house, not taking any money out (but consolidating a HELOC we’d used to remodel) but locking in a low interest rate and a long term. Down the road we may accelerate payment on this, but for now with a kid in preschool (and DH less than 5 years our from adding social security retirement benefits to his income), the low payment is a help. And honestly, as we’ve discussed previously, I do in fact consider an ~4.5% interest rate (before tax benefits) on a 30-year mortgage to be a fabulous deal I’m not interested (at least for now) in paying off ahead of schedule.

    You might consider refinancing, especially if you can lock in a lower rate, even if you continue to pay ahead — if it lowers your required payment. You won’t have to “go there,” but it frees up cash flow if you need it. Obviously if you consider this route you should do it while both of you are still employed full-time.

    We realized some marginal savings as a result of having one of us out of the workforce, but not tons. Car insurance went down (one of us now drives only “recreationally,” which is apparently cheaper), commute costs not really, utility costs probably went up (no longer practical to cut the a/c~heat off during the day). DH isn’t great about the whole food shopping/preparing role — he’s involved, but only marginally more than before, and not in a way that saves us money — but he is doing more around the house, e.g., painting the exterior. Certainly having one parent out of the workforce helps, but we’ve been blessed with good grandma care all along and are in fact paying more for preschool this year than we ever have before (and using more preschool as we believe it will be useful to DS to have this experience in preparation for kindergarten).

    • nicoleandmaggie Says:

      That’s a really interesting strategy. It really gets at this question of how much do we want to buckle down if we don’t have to in order to have more in the future. It’s not an easy one to figure out without a crystal ball. Are we over-saving? Under-saving? I just don’t know.

      All I know is we sure spend a lot of money, but we save a lot too.

      Since we prepaid a lot of principal we could also re-amortize which would cut down on monthly payments. (Whether or not refinancing is worth it depends on how much more prepayment we’re planning on doing!)

      • First Gen American Says:

        I actually like the lower monthly mortgage payment idea too but it might not be worth it if you think you might be moving in a year or two…decisions decisions.

      • nicoleandmaggie Says:

        The mortgage (minus escrow) really isn’t that big a portion of our monthly expenditures … I’m not sure we could lower it enough to make it worthwhile even without moving. We live in a pretty inexpensive part of the country.

  4. GMP Says:

    I think I may have missed some pertinent posts so I apologize for my cluelessness: it sounds like you are fairly certain that DH won’t get tenure? Are there indications that his case looks subpar (if you wrote about it, I am sorry, please just point me to the posts) or are you simply anxious, as is understandable?

    • nicoleandmaggie Says:

      Don’t you know you’re supposed to be an expert on our lives? (Kidding!) I don’t think we’ve addressed that per se, but let’s just say his tenure case is a lot less certain than mine.

  5. Cloud Says:

    Well, our situation is a bit different, since the job uncertainty is constant for us. I work in an extremely volatile industry and my husband works in an industry that depends at least in part on my industry at a company that lays people off roughly once a year. I’ve been laid off twice in my career (so far), my husband hasn’t been laid off (yet).

    So we just assume that either of us could walk into work any morning and be told to pack our desk.

    We deal with this by having a hefty emergency buffer- about 5 months of expenses right now (with no change to lifestyle). I’d prefer 6 months, but we seem to be unable to get to that- apparently 5 months makes us comfortable enough that we’ll spend our extra money rather than save it.

    Anyway, between the buffer, my severance check (~4 months pay), and the fact that my husband was still employed, my lay off last November wasn’t too stressful. It helped that I had a couple of job prospects to pursue from the start- that was luck and networking.

    We figure we could easily live on one salary for about a year.

    In practice, both of our jobs are semi-secure right now, so we’re debating the relative merits of eating up some of our buffer to either pay down our mortgage or lower the overall cost of some home repairs/improvements that we need/want to do, by doing more at once. Either of those things involves adding risk (since we’d be more exposed in the event of a layoff), but both have potential big financial payoffs. So we’re not sure what to do. I guess we’ll see how much money we have left after our upcoming vacation and run some numbers to figure out what we’re comfortable doing.

    • nicoleandmaggie Says:

      I wish we knew more about job opportunities ,,, I think DH would want to work on consulting long-distance, but who knows how long that would take to generate money. Or we could both move to a city. I don’t know.

  6. MutantSupermodel Says:

    I have been told multiple times when faced with an important decision consider three things:
    What would be the absolute best outcome?
    What would be the absolute worst outcome?
    What would be the most likely outcome (usually middle of the road)?

    Then, plan for the third but be mentally aware of the first two.

    Sometimes, it helps and sometimes, it doesn’t.

  7. frautech Says:

    Going through this myself. We’re planning that I become the single income supporter sometime in the next year, but his job is so volatile he could get laid off tomorrow. I know exactly what you mean by feeling like you’re never saving enough. Or feeling like on the one hand you could cut back on retirement to save more emergency savings, on the other hand you won’t be able to save as much for retirement with only one income so maybe you should save more now! Or I feel like I should go ahead and spend on certain things now since I won’t be able to later etc. In my case I am trying to refinance (lower rates and slightly rising home prices have made now the perfect storm of a good time) since reducing my mortgage payment is a big deal. But then, I live in a high cost of living area so I can’t really comprehend having a mortgage as low as yours or what other monthly expenses would even come close.

    • nicoleandmaggie Says:

      Lucky for us we bought a house on my income alone since DH didn’t have a job yet when we bought it! (Given how big our house is, I shudder to think what we might have bought had we thought our income would be larger…) And there’s a reason that housing costs are so low in this part of the country…

      Right now we’re at a 4.75% interest rate. If we keep prepaying, it won’t be worth refinancing to today’s lower rates for money. If we stop prepaying, then there’s some combination of lower interest rates and closing costs that would make it worthwhile.

  8. GMP Says:

    We bought our (huge) house on my income alone when I was on year 2 of the tenure track, and we could live on it if my husband lost his job under the assumption that we no longer had to pay for daycare. I have tenure now so that helps, and I have been pretty good at wrangling raises for myself (competing offers and such)… We don’t have a lot of savings really, but we recently refinanced (thank you Obama) the house from a 30-year to a 15-year loan (I think the rate was 4.25%) which amped the mortgage payment (btw, property taxes are quite high here) but we’ll be done before the second kid hits college, and we just started saving for college for our eldest. I am not even going to show you how pathetically unprepared we are for retirement. I don’t plan to ever retire anyway, I will be the old fart roaming the corridors; no, wait, actually I will drop dead from a heart attack.

    Anyway, I clearly have nothing fiscally constructive to say. I am just keeping fingers crossed for your DH’s tenure…

    • nicoleandmaggie Says:

      Thanks!

      Re: competing offers… I could rangle some, but I don’t think I would actually take an alternate job at this time (maybe in a year or two though). I need to work harder to stay competitive.

  9. Professor Zero (@profacero) Says:

    I drew unemployment after being denied tenure and after that one year contract ended, and before I started drawing salary in my next job, and the unemployment office knew it. I explained the whole situation. Initially the university tried to say no to unemployment but I said to the unemployment office, I don’t accept that, I am not fired I am laid off, and they said OK. I needed the money and I consider I had paid into it so it was mine. Yes I had to retro-document my job search, etc., i.e. keep making nominal inquiries about jobs in field that would be better than the new job I had, but it was OK.

  10. frugalscholar Says:

    Early on, I had a two year term job and I got unemployment for a few months.
    Does DH have anyone he can talk to about his tenure prospects? There’s usually someone who senses what’s going to happen…

  11. Carnival Of Personal Finance #324: The Universe Edition Says:

    [...] from Grumpy Rumblings presents Living on one salary?, and says, “If you think your partner is going to lose his or her job, should you start [...]


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