This was an interesting question posed on the Women In Red’s message board. Could you survive on 50% of your net income? What would you do if your income decreased by 50%?
This is making the assumption you don’t out and get a second job or find a new job. It’s just working under the assumption that you only have 50% of your current net income.
I think we could do it. It would be ugly and we would have no retirement savings. But current we’re living on less than half of our income, because we bring home only around 40% after taxes and retirement. If we lost 50% of our income, I doubt we’d be able to save for retirement or any extras.
We’d go back to living paycheck to paycheck. One big emergency or expense and I think we’d head towards debt. But looking at the numbers, even with our large mortgage, I’m sure we could survive on 50% of our net income. It just would be living on the edge and risky.
What about you?
20 responses so far ↓
1 paranoidasteroid // Mar 21, 2009 at 12:55 pm
I think we could do it. I’m saving nearly 50% of my take-home anyway, and by cutting out my clothing budget and eating out we could make it, although with no savings except for our 401Ks.
You’re right, though, we would be much less equipped to deal with an emergency or unexpected expenses. We could make it, sure, but all our security would be gone.
2 Meg from FruWiki // Mar 21, 2009 at 2:25 pm
We could do it, but it would mean that we wouldn’t be out of debt anytime soon, we’d stop putting money into savings, we’d have to make a few more cuts, and we’d definitely have less financial security.
3 Stacey // Mar 21, 2009 at 9:29 pm
It would be VERY close – but I think we could hunker down and work through it. It helps that a big chunk of our income (abt 30%) goes towards retirement and savings.
4 Kristy // Mar 22, 2009 at 7:28 am
We could do it, but like you we wouldn’t be able to save anything and would be living paycheck to paycheck.
5 LivingAlmostLarge // Mar 22, 2009 at 10:29 am
Yep, I think it would be very hard. Not to mention stressful that living paycheck to paycheck again.
It’s very stressful to wonder if one big accident happens I’d be very quickly back in debt.
7 JoeP // Mar 22, 2009 at 8:04 pm
Sound like the assumption is that you’d continue living where you are. Realistically, I think most people would be able to live more comfortably if they downsized their mortgage/apartment to meet their new income reduction.
For us, this would probably mean moving to a different town where we could buy a home for about $80k, along with possible selling my car for a less expensive one.
8 LivingAlmostLarge // Mar 22, 2009 at 10:48 pm
JoeP, excellent point. However, that asks the question, how long term is the 50% reduction? If it’s short term then it’s likely not worth it to sell a home and move. If it’s for a long term move say 3-4 years then a move would be reasonable. Also a move “might” precipitate an increase in income.
In this scenario, I think I was looking short term. But it’s an interesting thought about moving.
Of course renting is ideal because you could find a much cheaper rental potentially if you aren’t in a lease.
9 fengshui // Mar 23, 2009 at 12:58 am
It seems that I’m the one who chimes in about “life on the edge”….. I guess that I’m just more reckless than most. I’m still a FT student for 8 more weeks, only owkring 24-30 hours a week and about to go through a divorce, AND keeping the house (it is mine). That means that while on my student earnings, my house payment alone is 55% of my income. Am I scared? Hell yes. But, I refuse to sell it because of a 2 month hardship. I’m doing what I don’t want to do- cracking into my retirement to keep myself afloat long enough to land a job. I’ve got several interviews. I havea second interview this week for a job that I was offered $90k a year. So, I’m hoping that all of my hard work will pay off and I can stay in this house and make it all work. Then, no more “life on the edge”. My biggest reason for wanting to stay in my house is my dogs. I have 2 big dogs. If had to sell the house, I would likely NOT be able to rent an apt where I could keep them. Since they are my “children” and such a HUGE part of my life, I will do what I have to do to keep a roof over our heads, even if I have to work 2 jobs.
Sh*t happens…. and sometimes when you think that you’ll be married forever and having 2 incomes…. things change. I feel fortunate that I’m educated and in a field where I can still find jobs. 
It will be a rough next year or so, but we’ll make it 
10 Abigail // Mar 23, 2009 at 2:00 am
Well, when Tim was able to work, we were living on around $47,000 a year, including disability. Since he’s been on unemployment and I picked up some part-time contract work, we’re down to $37,000. And if his unemployment benefits aren’t extended in five weeks, we’ll be living on $21,300. That’s $1700 a month, if you’re trying to do the math.
On that we’d pay $700 for rent, $502 for his insurance premium, and have to make only minimum payments on our debt until he was well enough to look for work. It’ll be tight — survival is definitely the word — but we can definitely do it.
11 Kristy // Mar 23, 2009 at 5:43 am
Fengshui – I just wanted to say that I am sorry to hear about your divorce.
12 LAL // Mar 23, 2009 at 9:11 am
Fengshui me too about the divorce. I hope you find a job soon. That way you are able to manage. If not how long will you be able to survive?
Abigail, what is the possibility of moving? Or getting cheaper insurance? Aren’t you worried about taxes taking a chunk of $1700?
When we both made $20k/year we still had to pay taxes, and for my DH it was a set amount being a foreigner.
13 Mary // Mar 23, 2009 at 10:03 am
Before my DH got laid off we were close to living on 50% net. His lay off has been painless for us financially. My income covers all of our needs and we decided not to make any cuts since we are +$700 a month with dh’s unemployment. So, I know we could do it. I ran the numbers over and over again, but we decided for now not to. (Meaning while DH is unemployed he is working on our vehicles to save money down the road, but we have spent over $300 on parts the last month; we have kept the satalitte dish, we have kept our charitable contributions, etc)
We have no desire to move. There aren’t any job listings around here, but there was one in the City 3 hours. DH asked if we wanted to move and I was like heck no. The big thing is that we would not be able to sell our house for what we owe on it. Oh, we probably have enough set aside we could pay the difference, but that would set us a back a lot financially. So, yeah we’ll stay in a house that takes up 44% of MY take home and DH is going to see what his contacts around here net him. He has a good reputation in his business and people whom he has never met, know his name. So, we will see waht happens.
14 Hooked on Economics // Mar 23, 2009 at 11:44 am
I’ve been thinking about this a lot lately, and I feel very lucky that I could live on 50% of my income, even though I only make $35,000/year. It’s because of this fact that I refuse to get freaked out about the recession, I know I’m in a much safer position than most people.
15 LivingAlmostLarge // Mar 23, 2009 at 6:08 pm
I agree that it’s getting worrisome the job situation.
16 Meg // Mar 23, 2009 at 10:21 pm
The key is to keep your fixed expenses low enough so that you know you could cover them even with an entry level job in your field (or whatever the lowest paying job you think you might have to take in a worst case scenario).
Personally, I could cover my expenses with an income of about $30K – $35K, depending on if I had to buy my own health insurance. Of course I that’s assuming no savings and no frills. But I’d be working on the assumption that the income drop wouldn’t be forever, so suspending savings wouldn’t be a big deal to me.
The higher my income gets (this year it’ll be almost double that), the more of it I save. It makes me nervous to increase my fixed expenses – though I have no qualms about spending money on travel or shopping, since I know I could cut those budget items out if I had to!
17 JoeP // Mar 24, 2009 at 9:25 am
This is an interesting subject. There was an article yesterday (can’t find it now) about retailers concerned that people who have cut back consumption may be slow to increase their spending even as the economy improves. Of course, some people *have* to cut back because they are out of a job, but others are cutting back for other reasons. For example, we both have jobs, but have cut consumption to fortify our EF and also put more money into the market.
If people do live lean, even when there is money to spend, you could argue that they are holding onto their frugal behaviors. You can go even further and say that if a large number of people are being frugal, then that kind of redefines frugality; mainstream frugality becomes the status quo, and real frugality becomes more extreme.
18 LivingAlmostLarge // Mar 24, 2009 at 12:14 pm
Meg, I agree that it’s better to have low fixed expenditures. But sometimes it’s hard to do that if you are still shoveling out of debt.
JoeP, I think that what it is at least from my circle of friends, is most people are saving cash. They aren’t spending outrageously or buying much because most people are worried about their jobs. There are very few jobs even in supposedly recession proof jobs where it’s secure and guaranteed.
Right now my friend a state worker in Public Health is on mandatory Furlough every other Friday. That is a 10% paycut. She can use her vacation days or get unpaid leave.
As you noticed a hospital is making major paycuts so they don’t have to layoff people. A hospital is supposed to be recession proof.
So if a state job and healthcare aren’t recession proof, how will the rest of us be recession proof?
Thus most people I know are trying to live as lean as possible because they have no idea how secure their jobs really are.
19 fengshui // Mar 27, 2009 at 8:04 pm
Thanks for the kind thoughts. The divorce isn’t necessarily a bad thing for me, if that makes it any better. I’ll be ok, but living “on the edge” is so stressful that I’m actually starting to lose my hair
I thought that buying my house at such a cheap price (for my area- at $175k) would be a good move for me since I plan to hang onto it and let it appreciate…. but the PITI is $1400 a month, which is a lot for most people, let alone when you’re single. I do feel fortunate that the jobs that I’m interviewing for are ranging from $75-95k a year, so I know that eventually, once I start working FT, I’ll be ok. But, it is still going to be several months before that happens. Until then, it is triaging my bills, eating pb&j, and “winging it”. 
I also called CW Mortgage and asked about hardship programs and I’m faxing some documents to them and talking to someone Monday so I’m hoping that I can get a temporary interest rate reduction. Mine is 6.75% and I can’t refinance until I’m working FT. We’ll see……
20 LivingAlmostLarge // Mar 30, 2009 at 10:57 am
Fengshui, hope things are getting better. I think you should just prioritize paying bills you can and cannot afford. Perhaps consider putting student loans into hardship deferment because of the divorce. Same with the mortgage.
A divorce can be nasty and expensive.
The Budgeting Blog - Budgeting Guides, Tips, Tricks, and News - Mar 22, 2009
Leave a Comment