Once in a while, you hear good news. And often, troubled times lead to fresh wisdom. Here’s a little of both.
Perhaps you remember The Restless Project story of Kimberly: “One Income, Zero Hope.” Mom to a 5- and a 3-year-old, Kimberly had been given notice that she would be laid off from her human resources job, and she was more than restless, she was scared.
While her husband was doing well enough as a lawyer, and the Raleigh, N.C., family had a very reasonable $963 mortgage, they were drowning in his law school debt, which required a $770-a-month student loan payment.
Even after slashing every expense Kimberly could find — the kids got only second-hand toys for Christmas — she calculated that their badly broken household budget would be about $700 in the red every month. When we chatted, she was sounding pretty desperate. You can see more details of the family budget here.
“I have looked for new employment, to avoid this storm, for the past 11 months,” said Kimberly at the time. She requested the family’s last name be withheld for privacy reasons. “In that time, I have applied for well over 100 opportunities, and been selected to interview for seven. Though two of these interviews led to second interviews, none resulted in an offer.”
Here’s the good news: A few days ago, Kimberly got a new job that pays the same as the one she lost last fall.
Better still, the scary experience gave the family a new outlook on spending. There’s nothing like a crisis to make people focus. The family will emerge financially stronger when her paychecks start rolling in. Here’s why:
For starters, faced with a desperate situation, the couple managed to refinance the student loan debt.
“Miraculously, we did find a place willing to invest in the debt. In November our interest rate went down to 5.75% and the payment was reduced to $526 per month,” Kimberly said.
The lesson there? “I definitely wish we had not waited until panic mode at the eleventh hour to exhaust all resources pursuing the private student loan re-fi. It pains me to think of how much we could have saved in interest fees had we secured the more favorable loan much sooner. Going forward, as we do with our mortgage, we will periodically explore our options proactively to be sure we are getting the most favorable rate that we might be eligible for in the market.”That line of thinking actually helped Kimberly find money to save in other budget items, too. She was able to negotiate a discount with her child care provider, which helped considerably in her last few months before the layoff took effect.
“(They) felt terrible about my coming job loss and dropped our child care payment from $200 per week to $138 per week. Of course once I lost my job in October, we no longer had a child care expense, but it helped for a couple months leading up to the lay off,” she said.
The two income trap
The experience has also taught the family how fragile a budget based on two incomes can be. Families that rely on two incomes often fall into The Two-Income Trap, a concept popularized by Sen. Elizabeth Warren (D-Mass.) in her book of the same name. A family that relies on both partners working is twice as likely to experience an income disruption, such as a layoff. So Kimberly has a new, very practical strategy to deal with that reality.
“I now maintain three spreadsheets representing alternate situations we could find ourselves in: One shows us both working … and accounts for the substantial child-care expenses related to that … and the other two versions show our monthly financial picture if only I am working or if only he is working, which is the one we have been operating within since October,” she told me.
“The first one holds me accountable to how much we truly could be saving, or putting towards aggressively paying off the student loans, etc. … which if we cut out most all leisure expenses, while unrealistic, would empower us to save over $2,300 per month.
“The other two versions of the budget spreadsheet remind me of what our situation will be with any future job loss, and obviously removes child care expenses, but adds the cost of COBRA or private health insurance … which for me has been costing well over $300 per month … so that I can keep our emergency fund in tact and know exactly how long we could get by on one income plus the emergency fund should we find ourselves in this unfortunate situation again in the future. With any luck, I will only have to work with Budget Version A — dual income — for the foreseeable future.”
She’s no longer leaving that budget to chance, however.
There’s help out there
What lesson did she learn from the experience that she’d like to share with others? Don’t overlook an obvious strategy: Ask for help. Be transparent with others. That turned out to be particularly helpful when dealing with child care costs.
“I was embarrassed by our situation and the loss of my job, and it was the last thing that I wanted to talk about, but by being honest and transparent, we were able to stretch our limited financial resources somewhat further and receive assistance that was not advertised, but that was only available for consideration by request,” she said.
“When necessary, explore all options even if it means sacrificing some pride. I have always been extremely conservative about saving, never using credit cards, living well below our means … our 1350 sq. ft., 3 BR house with no garage in the midst of the land of suburban McMansions can attest to that … and so it pained me to have to ask for any sort of hand out or charitable aid.
“However, by humbling myself to open up and explain the dire situation we were soon to find ourselves in to the child care director, we were granted a permanent $266-per-month reduction in full-time child care costs for our 3-year-old. While I was out of work, we later were granted a need-based scholarship for this same child to continue three days per week, half-day preschool at a local church so that it would only cost us $100/month. The after-school care program for my older child waived the reinstatement registration fee due to hardship.”
Call Kimberly a Restless Project happy ending. Or at least, a story with a new chapter.
“The future, once more, is looking moderately bright for this family of four so desperately working to hold onto our place in the rapidly disappearing middle class.”
Have you overcome a job loss? How did you do it? Write to me at Bob at BobSullivan.net.