My wife and I recently took a voluntary $20,000 per year reduction in income – after taxes. Before you question why we voluntarily chose to do this, you have to understand the full situation. My wife was in the US military and her job required her to work very long hours and irregular schedules. Weekends and holidays did not exist in her line of work. Planning for events, holidays, vacations, and a social life was difficult because her work schedule would usually only be released 4-6 weeks in advance. Add to that the possibility of deploying for 6 months at a stretch and it quickly became evident that at this stage in our lives, our quality of life was more important to us than earning more money.
I know a lot of people can’t afford to take a $20,000 a year pay cut, and it’s not easy. Fortunately, we started planning for this drop in income well over a year ago and we were prepared for it.
To prepare ourselves for this drastic change in income, my wife and I paid down all of our consumer debt, trimmed unnecessary expenses from our budget, and began living well below our income level. After doing this we added more money to our emergency fund, and began investing a little extra in our retirement accounts while we had the available funds to do so.
My wife recently began her new job, and is very happy with her decision to try something new professionally – and so am I. Even though my wife and I earn about $20,000 less per year now, we are still financially stable and we now have a better quality of life than when she was earning more money, but working irregular schedules. I am glad my wife and I have a very open line of communication and planned for this a year ago – when we still had the time to prepare for it.
Unfortunately, not everyone has a chance to prepare for a drastic decrease in income. If you have to deal with a similar situation, I hope your story ends as well as ours did. If you are not able to prepare in advance for a drastic drop in income, I hope you will be able to find a way to handle your new situation. Later this week I will write about how to deal with a sudden and drastic drop in income.
Note: This is not intended to say anything bad about the military. My wife and I both served and are proud to have done so. For both of us though, we reached a stage in our lives where we wanted something else.