The Two-Income Family
The first example is for a two-income family that suddenly loses one income. Although the salary lost is the lesser of the two, the second income is not much smaller than the family's primary income. This family is losing a substantial portion of its overall income, and the family has less than three months' savings available. As you will see, however, with some creative financial management and cost cutting, this family can survive at least a year without this second income, surely enough time for the second wage earner to find another job. The worksheet that follows shows this family's monthly budget.
One additional note: The tax figures are approximates for a two-income family earning $75,000 and living in Ohio. Your own state and local taxes may vary and you can get accurate tax information from your most recent pay stub or by calling your former employer's payroll office.
You can see from this worksheet that this family currently needs to find $2000 per month in order to balance their family budget. Before the family lost income #1, expenses and income roughly balanced at $6250 per month. Now, however, one income has been reduced from $3000 per month to approximately $1000 per month that is received as unemployment compensation.
This family's first decision was to put the $1500 received as severance pay into savings, increasing total savings to $12,500. You should always try to hold on to any cash as long as possible and put off paying any debts as long as you can.
In order to survive for a year without this second income, this family has to cut $2000 out of its budget for the first six months, and $3000 for the second six months. (Remember that unemployment compensation generally only lasts for six months. Although it can be extended in some cases, you shouldn't count on it at this point.)
Automatic Budget Cuts
The first area to cut comes automatically: Because the family has lost one income, its monthly withholdings for federal, state, PICA, and local taxes immediately drop. Total withholding for these taxes becomes approximately $1100 when the second income is lost. (Remember that unemployment compensation is taxable.) Even though the family pays some taxes on unemployment compensation already, the family is able to cut $525 from its budget.
Staying In Control
Once you have developed an effective budget, make sure you stay in control of all your financial obligations. Be sure to communicate your financial situation to every member in the family, so that everyone understands his or her contribution to the family's financial survival. Pinching pennies can be trying at times, but if you watch your budget closely, you will be able to maintain a sense of security that will guide you and your family through this difficult time.
