A Simple Question to Jump-Start Your Finances

Courtney and I have recently stumbled upon a new hurdle in our personal finance journey: complacency.

You see, we've experienced just enough success to make us feel comfortable, but not enough to be even close to accomplishing what we want. We budget fairly well, we live on less than we earn (or right at what we earn), and we're able to explore passion-based income opportunities. On the flip side, we're still making far less than we're worth, we aren't saving for college or retirement, and we still have a bunch of student loans.

In our current situation, I'm always looking for ways to jolt our perspective and spark a bit more motivation. In the past, we've tried brainstorming more exciting ways to frame our goals, or sharing empowering stories we've read about from others' lives. These can work, but they've began to lose their effectiveness.

Recently, however, I stumbled across a simple but powerful question that helped us shift our perspective and smash our complacency:

What would you do if, starting tomorrow, your income was immediately cut in half?

To receive benefit from the question, it's important to leave details on the sideline. It doesn't matter how or why it happened; instead, focus on what steps you'd take if you had to live on half your income starting tomorrow. Most people would have to make radical changes.

You can approach this question on the expenses side or on the income side (earning back that income quickly). Neither side is more valuable than the other, and both are worth exploring further.

Here's a timeline of this presentation:

  • The question [0:28]
  • The expenses side: What would you cut first in order to survive? [0:42]
  • The income side: How could you double your income next month? [2:10]

In order to derive any benefit, you'll need to really adopt the mindset implied in the question. Don't focus on whether it's possible, but instead on what would realistically be the first expenses to go and the first steps to replacing the income.

Once you've made a list for both sides of the question, you'll want to review it for any areas that seem realistic, even at your current full income. For example, your first steps may include selling an extra car, canceling an expensive cable package, and slashing your grocery budget in half. In this situation, you've likely brainstormed areas of your budget where you aren't spending as optimally as you may like. You may choose to go ahead and try some of those options out, or at least take steps to narrow the gap between your life at 100% income and your life at 50% income levels.

The same process is important when attempting to make the income back as quickly as possible. Realistic options could include enrolling in a course (applying for aid if needed), launching a side business, and/or picking up new clients or leads. Nearly every time I brainstorm options for doubling my business income, I unearth something I hadn't thought of before. Acting on these new ideas has helped me tremendously in generating new income (even if it doesn't immediately double it)!

The next time you're feeling a bit complacent in your finances, try exploring this simple question. What would be the first expenses you'd cut in order to survive on only half your income? What would be the first steps you'd take if you had to earn it back? I think you'll be pleasantly surprised by the results of this experiment!

More about...Budgeting, Psychology

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Procrastamom
Procrastamom
10 years ago

Done. At the beginning of this year we were presented with the possibility that my husband may be losing his job. It hasn’t happened yet, but the company he has worked for for 12 years is on its last legs absent a new juicy contract. I have a spreadsheet in our budget document labelled “Doomsday”, which is basically a copy of our budget with lots of expenses slashed and taking into account the amount of unemployment income he would make instead of his salary (we’re in Canada, so I was able to go on their website and calculate how much… Read more »

Nicole
Nicole
10 years ago

Our income WAS cut in half… I’m looking forward to it going back up to its regular amount sometime next October. 🙂 But that was a voluntary reduction and we’d saved an entire year for it. We’ve been spending more than we earned this year and enjoying it! If it were cut in half again and didn’t want to liquidate our emergency funds, I am very good at being poor. Not something I want to do, but something I’m good at with 6 years of previous practice. We would stop prepaying the mortgage, cut down our netflix plan, call our… Read more »

bethh
bethh
10 years ago

Ooh that’s a good one. I’m out of debt, yay me, and I’m a renter. If I continued to pay all my fixed expenses (rent, phone, internet access), I’d have $350 or so left to work with for everything else. I would use my bike for all transport (though I buy gas less than once a month as it is); if I eliminated saving for retirement, I could get by indefinitely on half what I make now. I wouldn’t like it though!

Steve
Steve
10 years ago

Our income was cut by 2/3rds a couple years ago, when I got laid off. Our response was to do nothing for the first month. Our emergency fund was more than adequate to handle a month of reduced income. If it had gone on longer, we would have cut back from our 50% savings rate for a while. That’s one of the nice things about living on the lesser of two incomes.

jesse.anne.o
jesse.anne.o
10 years ago

I’d be able to pay my rent and expenses (electric, gas, iphone, internet and netflix) which would leave me about $330/month to feed me and my cats. Given that I’m debt-free and have a 6-month emergency fund, I’d keep the internet/netflix (if not, they’d be the first to go and I’d just use free wi-fi/iphone).

Everything else goes into staggered savings accounts (gifts, vetting, vaca, etc.) anyway so I’d just need to stop saving until I could apply for a better job!

Moneymonk
Moneymonk
10 years ago

Since I have no debt, my income being cut in half would mean I would lower my 401k contributions

Elizabeth
Elizabeth
10 years ago

On July 5 my partner quit his job (long story) which is almost exactly half our income.

Unfortunately, our immediate responses were polar opposites – I wanted to look at cutting expenses, he wanted to look at consulting opportunities.

We are definitely not working on the same plan, though we’ve talked and talked and gone through several different plans and books and tried to set goals together. Even after all that, we aren’t pulling together. It really bothers me.

JenK | Sex & Money
JenK | Sex & Money
10 years ago

The trouble with this exercise is that the ones who can most benefit from it are the ones struggling to live month-to-month. If you’re doing okay – have sorted needs from wants, aren’t indulging all wants, have an emergency fund, etc – then it can be a useful planning tool, or a way to rethink needs vs wants, or a way to look at how one could increase one’s savings to 50% of one’s income. This can be a useful thing to revisit sometimes: I recently realized that over the last 5 years my landline has become more optional for… Read more »

Courtney
Courtney
10 years ago

Hubby and I could survive on the smaller of our two incomes (about 46% of our current total take-home pay) without too many painful changes. Slash entertainment by two-thirds, cut the food bill by 10%, drastically decrease saving each month for designated expenses like holiday gifts, vacation, etc. We’d still get to keep cable/internet, netflix, cell phones, and nearly all of our charitable giving.

Ella
Ella
10 years ago

This was a fun read!

I could live on half my income, but I really thought and I have no idea how I could quickly increase my income significantly.

Right now I have visa restrictions so I’m not allowed to make money doing anything other than my main job, but even long-term, I wouldn’t really know what to do.

I’ve always felt like maybe some people just know how to make lots of money (maybe through having higher expectations?) and I’m not one of those people. It’s a hard feeling to shake.

Justin King
Justin King
10 years ago

Something else to think about: What would you do if your income doubled?

…how can you get there?
…would it be worth it?

mike
mike
10 years ago

Thanks, Baker… fun stuff! 1) What would I cut? All the non-necessities: cell phone, better-than-needed insurance coverages, cable, internet, etc. 2) What would I do to try to double the income the following month? Take up any and all jobs within my capabilities – mowing lawns, handyman work on the side, look for jobs delivering pizza… whatever it took. Might also look into having my wife get a job outside the home, she’s a SAHM now. But only if she could earn enough to cover daycare costs and still have leftovers. We’d get by for a little while, but living… Read more »

Chipmunk
Chipmunk
10 years ago

Hmmm … good question. I already live on half of my income.

Amanda
Amanda
10 years ago

I really appreciate this article. I feel it’s good for people on most levels. I have month-to-month friends who simply choose not to budget or think about finances and they could benefit by learning to distinguish needs from wants. I like the category Adam stated. Those who were doing really bad and no longer have toxic debt. A year ago this was our situation and I feel we could have used this article then! There are a few things I would have chosen differently and not purchased to save money now. Also, it’s good for higher earners to think about… Read more »

Lindsay
Lindsay
10 years ago

Ha. Good exercise if you have a lot of fat to cut. Me, I’d have to call a real estate agent. 😛

Bill the Splut
Bill the Splut
10 years ago

My current monthly expenses are exactly half of my current net income. Losing half of my income would mean that I couldn’t save, so I guess I’d have to cut my expenses.

Except…the reason my expenses are half my income is that I really couldn’t cut them any further…

Nicole
Nicole
10 years ago

We were fortunate(?) when we were making all the fixed expenses decisions that my husband didn’t have a job yet. So they’re naturally keyed to my salary alone. At the time I was just going by heuristics from the motley fool and other places about what % to spend on the house and so on. I had no idea that doing that would provide so much freedom.

If you can keep yourself from buying too much house (and too much car), there are a LOT of benefits.

Greg McFarlane
Greg McFarlane
10 years ago

If my income were cut in half, then presumably my free time would increase, right? I’d spend it looking for opportunities to leverage it- the time, that is. That chance to finally leave the workaday world and join the entrepreneurial ranks becomes much easier to identify once you have time to think about and act on it.

Sean Ruiz
Sean Ruiz
10 years ago

Wow. Great job. Such a great question to get people thinking of decreasing expenses and increasing income (and hopefully wealth). So if my income was cut in half at this very moment, I would cut off saving up for a car and buy one already. I would aggresively work on building a name for myself in Skateboard Mentoring, and maybe work part time at another jon to keep me afloat while the skateboarding thing kicks off. I would spend less on eating out. I would blog more. I would be more efficient with my time (time is money and were… Read more »

Sean Ruiz
Sean Ruiz
10 years ago

Awesome question! Great way to get us thinking of decreasing expenses and increasing income (and hopefully wealth).

If my income was cut in half at this very moment, I would cut off saving for a car and just BUY one. I would aggressively spread the word on the internet that I am doing skateboard lessons! I would even get an additional part time job to keep me afloat while building the skateboard mentoring. I would definitely cut down on eating out and I would budget my time alot better too!

Wow
Wow
10 years ago

Wow, there are a lot of people here who definitely make more money than me (and more power to them! I’ll get there some day). I could definitely not keep anything like netflix if my income was cut in half, I cancelled that a long time ago. I am barely living check to check while I dig my way out of credit card debt. I would probably have to sell my car, cancel all insurance, cancel cell phone, and sell most of my posessions to keep up on my CC payments and pay for groceries.

Betty Ann
Betty Ann
10 years ago

Doesn’t anyone who reads this blog have kids?! Isn’t there anyone out there with expenses other than maxing out the Roth or the 401(K)? I recall only one commenter mentioning that his wife is a SAHM;

I need to read more diverse blogs, maybe?!

Tim
Tim
10 years ago

@Betty Ann, we have a dog, does he count as a kid? we think so. irt the post: we were living on one income, which forced us to live below that income. when spouse got a job, we continued to live the same as we had. so if one income fell off, we would be in the same place as we had been. if one income were to be cut in half, we would be in the same place as we had been. the purchase of our house has increased our expenses to over half of one income, but expenses… Read more »

Anne
Anne
10 years ago

Four kids here … mostly too busy to comment 🙂

Nicole
Nicole
10 years ago

@22 Betty Ann… Daycare is non-negotiable. Other than that he doesn’t eat much and his major expenses are around Christmas, and even then the grandparents send him so much there’s not much left for us to spend. I also think the 529 is non-negotiable. We could still manage the Y fee for swim classes. There’s just not much there TO cut.

How should having children change the calculation in your view?

BobJ
BobJ
10 years ago

1) cut 401k.. (two people) save us nearly 45K
2) sell one car
3) eat out less
4) take a low paying job
5) enjoy life more

Sandy L
Sandy L
10 years ago

@22. I’m a working mom with 2 kids.

Cuts (assuming our free time doubled)
1. Daycare. It’s my biggest expense..more than my mortgage($1600/month)
2. Stop paying extra on mortgage.
3. More Super Scratch cooking like cheese and bread. Less eating out.
4. More free excursions less pay parks.
5. Less home improvement projects (gotta love fixer uppers)

We could easily live on one income because we bought our home based on my salary alone and never upgraded after kids. So thankful for resisting lifestyle inflation.

basicmoneytips
basicmoneytips
10 years ago

I can understand where this writer is coming from. I recently turned 40 and realized my retirement is not where it should be. I have been diligent about contributing – however, the dot.com bust and then the real estate bust have done wonders on my 401K.

When it comes to finances, it is best not to only live in today. Time passes quickly so it is important to think 5, 10 and even 20 years out.

Kevin
Kevin
10 years ago

We’re DINKS, monthly household net income is around $8,200.

If our income was halved, we would:

1) Stop saving for retirement ($2,150/month)
2) Stop building savings for emergency fund, car replacement, and travel ($850/month)

That would free up $3,000/month, leaving a $1,100/month deficit remaining. Between our emergency fund ($15,000) and employment insurance payments ($1,600/month), we’d be fine for at least a couple of years. Then we’d have to look at further cuts (cable, cell phones, excessive life/disability insurance, discretionary spending), and selling stuff.

Kevin
Kevin
10 years ago

@Sandy L:

“We could easily live on one income”

At the risk of opening a can of worms, I have to ask: If you could “easily” live on one income, then why don’t you do it?

Why send your kids off to daycare every day if you don’t have to? Why not be the full-time parent they need, if the extra money you’re earning is so completely unnecessary?

Sam
Sam
10 years ago

I think this is a great excercise, especially in these uncertain times. We have talked about this scenario a few times but never actually come up with a plan. We don’t have debt except for the mortgage (which was a project in and of itself for those of you still working on the debt monster). I think we would cut down on savings, but I would want to keep contributing, to the extent possible to retirment accounts, we would cut out entertainment, eating out costs. We have a good chunk in our emergency fund $25,000 so that should help us… Read more »

Sam
Sam
10 years ago

@ Kevin, there are a variety of good reason for staying in the work force these days. (1) Job security is reduced in general, so if you have two adults working you have more security as a family; (2) income and career growth drop off dramatically for people who step out of the work force, many never make that up; (3) many adults enjoy their careers and want to continue in them even if they have children (4) health insurance/retirement savings (i.e. you can’t contribute to a 401k if you are not working, etc.).

Financial Samurai
Financial Samurai
10 years ago

I would just work harder to double my income. There’s a pretty easy correlation.

For you Baker, I think it’s the same. You’ve chosen not to do anything on your blog regularly anymore and write staff writer posts. Seems like you have become complacent as you write.

Hence, it’s good to know that once you have your fire again, you can just write on your site and here.

Best,

Sam

Nicole
Nicole
10 years ago

@Kevin Do you really want to go there? Preschool has a LOT of benefits for the kids. Working has a lot of benefit for the mom that aren’t just monetary. You may believe that having a stay at home parent is the best choice for your children and more power to you. But in reality kids don’t NEED one parent 24/7 as you claim. Even with stay-at-home parents it takes a village to raise a child. Some folks are lucky to have relatives nearby to take some of the stress away, and some folks have daycare people to provide variety… Read more »

lil
lil
10 years ago

@Betty Ann, I have the same complaint too. It seems like there needs to be an article here or there that is helpful to those with kids. It is a HUGE expense and really changes what I can do financially and my financial goals, needs, and wants. There is also a HUGE phsychological difference because although I don’t mind personal self-sacrifice, but it’s different in imposing those sacrifices on your children unless it is really needed. I like to expose them opportunites that I didn’t have as a child.

lil
lil
10 years ago

@Kevin, You may not realize this and probably did not mean to, but it is VERY insulting to call a mother or father who works as not being a “full-time parent.” Although I am the main bread-winner of my family, I am definitely a full-time parent despite the fact that I work. I have always been fully involved in every aspect of my children’s lives. Their daycares were researched meticulously before I chose them; I spend a full day at each day daycare facility once a year so I fully know what my child’s day is like there. My oldest… Read more »

Jenna
Jenna
10 years ago

Nicole – if it’s the same Kevin in both #29 & #30, he doesn’t have any kids. Even if he does, it seems weird to judge your choices.

Great post Adam!

Daniel
Daniel
10 years ago

I have a few things I could cut. My debt payments are rather heavy right now, but I can cut:

1. Netflix – $9.44/month
2. Cheaper cell phone – $30/month
3. gas – $30/month
4. food/eating out – $50/month

I could save roughly $120/month, which isn’t a lot (and certainly not half of my income). I’m working to pay down a lot of my debt right now, hence the high level of expenses.

Daniel
Daniel
10 years ago

P.S. But I do have things I could sell, including an iPad (about $500) and fish aquarium/stand (about $150). Also, decreasing my electricity use (air-drying clothes, non-heated dry on dish-washer, higher temp on AC) could probably save me another $50/month.

J.D. Roth
J.D. Roth
10 years ago

For those wishing there were more articles about families with children: I am always willing to host guest articles on this subject. If you want to share your story, send it in. I don’t write on the subject very often because it’s not within my realm of experience. From what I can tell, parents don’t like parenting advice from non-parents! 🙂

Todd-Financial Educator
Todd-Financial Educator
10 years ago

Especially for two-income households, the question is important, since the likelihood of it happening is twice as great (granted, the event is arguably half as devastating, but that’s different than likelihood). Financial complacency is one of the causes we’ve identified in those who go through our Bankruptcy classes at Debt Reduction Services Inc. Those who get complacent about their finances stop saving for emergencies (yes, they can come in multiples) such as job loss, medical expenses, car expenses, etc. 80% of those in our bankruptcy classes had $0 available to them in savings when these emergencies occurred, and another 10%… Read more »

mike
mike
10 years ago

I doubt that we parents would be able to come to a consensus in a single post on the various expenses of parenting – it’s already apparent in the sidebar conversation regarding At-Home vs Non-At-Home decision. Families are like snowflakes… we’re all different and make all kinds of choices that impact our kids and our finances: Public or Private Schooling? Save for College or plan to have the offspring foot the bill? At-home parenting or dual income? Extracurricular activities, or inexpensive (or free) alternatives, like playing with neighborhood kids in the yard? Eating out or at home? My wife and… Read more »

MutantSupermodel
MutantSupermodel
10 years ago

Interesting question but it’s just not practical for me, a single mom of three. Half of my income goes to rent and daycare alone. Such a catastrophe is precisely the reason I’m furiously paying off my debt and slowly building an emergency fund. If something so awful happened, I’d have to move in with my parents which would bring up custody issues etc etc etc! BUT I get what you’re saying! A more practical adaptation of your proposal is what would happen if my discretionary spending budget were slashed to half. It’s something I’m toying with right now in a… Read more »

Budgeting in the Fun Stuff
Budgeting in the Fun Stuff
10 years ago

Gas $40 — No more driving to work. Mortgage Overpayment $160 — We would only pay the $740 due instead of the $900 we’ve been paying. Vacation Account $250 — That’s how much we put in a month to take a couple of annual vacations. Fun Money $250 total – We each get $125 of fun money a month. Eating out $100 Entertainment Expenses $50 — We don’t go to the movies or participate in many paid activities, so that’s as much as we could cut. We’d still hang with friends, have potlucks, and board game though. Biweekly Maid Service… Read more »

chacha1
chacha1
10 years ago

We went through this pretty closely last year when I was laid off. Our cars were already both paid for and we had some savings, so we cut our collision/comprehensive insurance. We rent, so if unemployment had lasted long, we could have down-sized. We stopped shopping at Bristol Farms and ordering takeout, and I started shopping at the supermarket and cooking. DH had to give up some fairly high personal spending in order to make sure rent was covered. I gave up pretty much all personal spending and used unemployment compensation to pay for insurance and food. Once I was… Read more »

Sarah
Sarah
10 years ago

I can see how this would be useful, but I also want to point out that it’s not healthy to maintain that incredible vigilance you need while paying off toxic debts forever. Or at least, it’s not how I want to live my life.

I prefer to live on a portion of my income that I feel is very reasonable and save the rest, and not have to spend my time and energy scaring myself into saving more.

Nancy L.
Nancy L.
10 years ago

@Mike (#42)

Not to mention what happens for parents of special needs kids. Even with insurance, the copays and taking time to get to the various meetings and appointments adds up, not to mention side things, like not wanting to move away from a really responsive school system.

Christian
Christian
10 years ago

@Todd (41) I would say that the probability of losing half of the family income is MUCH greater for dual-income families. As a single-income household, the probability of losing all income is greater than the probability of losing anything more than a quarter (and that mostly for state workers in California).

Avistew
Avistew
10 years ago

I’ve thought about it again and again and I think the main thing would have to be moving in with his parents. We’d save the rent, electricity and phone bill, and that’s almost half our income right there. We’d also spend less on food per person, being four people rather than two. Then I assume we’d look for a better job for him. I’m still not allowed to work, and the immigration centre says it will be 7-8 more months before they even open my application, so we’re probably looking at at least one more year of me not working.… Read more »

Cath Lawson
Cath Lawson
10 years ago

LOL – At one time, my income dropped about 90%. It sucked at the time but looking back it was a blessing as it made me see how wasteful I had been.

Some of the things I did to cut back – stop eating in restaurants, sell a car, sell my timeshare, get rid of Sky TV, collected an old debt that I’d given up on getting paid for (a business debt, not a personal one).

We stopped buying birthday and christmas gifts for anyone but our own kids.

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