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Ask Dave

Living With The Right Percentages

Brandy's husband was laid off and their income was cut in half. How should they adjust their lifestyle?

QUESTION: Brandy’s husband was laid off 3 months ago, but they are going through their debt snowball. However, she asks Dave what kind of changes they must make to their lifestyle now that they are operating on a reduced income. They each made $53,000 a year. Dave tells her the right frame of mind to have in this case.

ANSWER: I think most things are about ratios. The big thing about ratio changes when your income changes is if it’s a permanent change, you’ve got to adjust all of those ratios in relation to your income. You’ve got to adjust your house budget, your eating out budget, your clothing budget and all the others to your income. If you’re used to having $120,000 in income, then you are used to having a certain lifestyle. If the income drops to $53,000, then you need to live life a different way.

You’ve got to adjust your mindset in every category if this is a permanent change in income. Unless he goes back to work in the first 3 or 4 months of next year, most of your expenses have got to be cut in half. Right now, I think this is just a temporary, halfway cut. You won’t only be making this in 2 years. Don’t do something drastic like sell your house because your house payment is too high right now, because this is not a permanent change. But if you can change some other things temporarily to get you some breathing room for a while, I’d do that.