The course of life is unpredictable . . . no one can write his autobiography in advance.
~ Abraham Joshua Heschel
Update: This post is featured in The Carnival of Money Stories #49 at Foreigner’s Finances. Thanks!
When I wrote about Our 2010 Financial Plan in January, there was a lot of uncertainty about our income – both in terms of quantity and stability. I quoted Jon Bon Jovi, who said, “Map out your future, but do it in pencil.” Well, once again, my eraser is worn down and my pencil, no more than a stub.
At the beginning of this year, Mr. Cents, our sole income earner, had just started on another new job and we were counting on a modest salary plus commission. We wouldn’t have the income we were accustomed to a few years ago, but we would get by as long as he earned some commission. There has been no commission thus far, and we’re still uncertain about job stability. Here’s how things are shaping up so far using the categories I outlined in January:
Budget Plan
- Make sure basic living expenses are covered by the base salary: Basics are covered for this year, but if we don’t increase our income soon, we’ll need to make some serious budget cuts in the near future.
- Plan for 25%-30% extra income from commission: This doesn’t seem likely at this point, but you never know. The business Mr. Cents is in is one that ramps up in the spring and peaks into the fall. Still, I think it’s time we started a “what if it doesn’t happen” scenario.
- Find a way to cut cable T.V. expenses: We reduced our cable package by cutting out the digital boxes and going down one level for channels. I had to give up BNN to do this, but that’s OK. We still get the main channels the kids like and SportsNet for baseball games. It’s saving us $257 per year.
- Closely monitor grocery and dining out expenses: I had to increase our dining out budget and decrease out grocery budget a bit, but the changes basically balanced out, so they didn’t really help or hurt. We are keeping to our budget very well, but we will eventually go over it if more income doesn’t materialize in the second half of the year.
Mortgage
Our mortgage balance is just under $31 000, which is pretty good. Still, we would have a lot more breathing room if we didn’t have the mortgage payment. We had originally hoped to pay it off this year, but that doesn’t look likely at this point. I don’t want to get too aggressive with prepayments in case we need our savings to make the remaining payments.
If we just continue our weekly payments as they are, the mortgage will be paid off by the beginning of May, 2012. But if we can’t pay it off sooner and our income doesn’t increase, we may have trouble with the payments. It’s a bit of a Catch-22 situation.
TFSAs
I had taken some money out of our TFSAs at the end of last year in case we needed it, but I replaced it recently to take advantage of the higher interest rates on TFSA savings accounts as opposed to regular savings accounts. We may need to use this for living expenses this year if the income situation doesn’t improve.
RRSPs
I mentioned last time that we had put quite a bit into RRSPs in 2009 as a result of a largish one-time payout. We are hoping not to touch this money, but if things really take a turn for the worse, I guess we could consider taking a little out. But that would have to be a last resort.
RESP
Unfortunately, putting more money into the RESP doesn’t seem likely this year.
At What Point Do We Decide That Our Situation Is No Longer Temporary?
According to Warren and Tyagi in All Your Worth, you are allowed to let your Must-Haves rise above 50% if you have experienced a temporary bump in the road like a new baby, a serious illness, or a job loss. The key is to have an end in sight. At what point will your situation improve? At what point will you decide that your new situation is permanent?
That’s where we stand at the moment. We have not experienced a job loss, but our income level has been so drastically reduced that it will necessitate some big changes if it doesn’t increase a little very soon. I have a rough idea of what will get cut, but I need to get more specific on the “what-if” numbers. The truth is, I really don’t want to have to give up some of the comforts we’ve become used to.
Like it or not, that might be just what we need to do. My task over the next quarter is to figure out a parachute plan. This will entail budget cuts and spending adjustments that are to be implemented when we decide it’s time to pull the rip cord. I have a feeling that time might be coming soon. I’ll update our plan again next quarter.
Do you have a parachute plan? What steps would you be able to take tomorrow if you lost your job or experienced a drastic income reduction?
On my first read of your post, I misread the first step of the budget plan as “Make sure living expenses cover the base salary.” Sadly, my misread is close to what many people do.
.-= Michael James´s last blog ..Short Takes: Fiduciary Duty for Advisors, Karl Marx Day Trading, and more =-.
Unfortunately, when you’ve experienced an income reduction, it sort of feels like you’re budgeting in reverse. I’m constantly reminding myself that reduced income means reduced spending. I’m hoping that the income will increase again soon and that we can hold spending at a reduced level for a while to catch up on savings. We’ll see what the future holds!
[...] Balance Junkie – 2010 Financial Plan: Q1 Update [...]
[...] coverage on CNBC on Friday. I would normally prefer to get the Canadian angle from BNN, but our recent budget cuts mean that I can’t get that channel [...]
[...] withdrawal rules to manage our finances recently. If you’ve been keeping up to date with my quarterly planning reports, you know that we have experienced quite a reduction in our income level over the past 2 years or [...]