Could you withstand a 50% decline in income? on clarkhoward.com

According to Business Week, you now have a 1 in 4 chance of experiencing a 50% decline in your income because of a job loss. That puts most of us in a very difficult spot as the average American family is not saving and continues to live on borrowed money.

The reality is that corporate America no longer has a lifelong compact with us. It used to be that you worked for one company for a lifetime; the company was good to you and you were good to them with your loyalty. But today, it's more like we rent each other. Employers are rewarded by Wall Street when they pink-slip you.

About two-thirds of us have little or nothing saved for retirement, which means that one-third of us are saving. Meanwhile, about 30% of Americans pay their credit card balances off in full each month. Hmmm. Clark often wonders if the net credit card payers are the same sector that's also saving for retirement.

But back to the topic at hand: If you're in dire financial straits, you've got to tackle your problems slowly. Remember, a starvation diet hardly ever works. But those who moderate their diet over time can make great progress.

The same thinking applies to your financial health. If you have a 401(k) at work, start by investing as little as 1% -- that's 1 penny out of every dollar. Then you can bump it up by another 1% every 6 months or so. You'll hardly notice the difference in your wallet and you'll be developing a great habit.

On the other hand, Clark's advice about spending money comes from the school of shock therapy. If you know that the Visa or MasterCard in your wallet makes you spend money, then don't carry it in your wallet anymore!

What others are saying

I recently went through this situation, though fortunately didn't drop a full 50% (now making 62% of what I was before). I can't even imagine if it had gone down another 12%, I definitely would have been in dire straits. As it is now, it's just meant a lot of belt tightening. There is no extra spending going on and credit cards are definitely used only in case of emergency.

It amazes me that businesses see their primary way of saving money as cutting employees or lowering compensation. Not only see it as a good way to cut costs, but are actively encouraged to do this (I fully expect at least one of the major airlines to get to the point where they have just one employee left who's expected to do every job). How do they expect consumers to buy, buy, buy our way out of an economic slowdown if they have nothing to spend, spend, spend?
By jbean @ 06/26/08 12:45:31 PMreport abuse
Setting realistic goals
Like Clark said, starvation diets aren't realistic. I racked up my credit card; but not buying anything until it's paid off is unrealistic. So I reward myself with something every $600 I pay off. Instead of eating out twice a week, I eat out once per week.

When making a purchase I only buy things "I absolutely must have!!" I avoid buying things I'm on the fence about, or may regret. It's a lot more satisfying to own fewer, better things that you researched and bargain hunted for.
By Dylan @ 06/25/08 01:43:01 PMreport abuse

I recently went through this situation, though fortunately didn't drop a full 50% (now making 62% of what I was before). I can't even imagine if it had gone down another 12%, I definitely would have been in dire straits. As it is now, it's just meant a lot of belt tightening. There is no extra spending going on and credit cards are definitely used only in case of emergency.

It amazes me that businesses see their primary way of saving money as cutting employees or lowering compensation. Not only see it as a good way to cut costs, but are actively encouraged to do this (I fully expect at least one of the major airlines to get to the point where they have just one employee left who's expected to do every job). How do they expect consumers to buy, buy, buy our way out of an economic slowdown if they have nothing to spend, spend, spend?

By jbean @ 06/26/08 12:45:31 PMreport abuse

Setting realistic goals

Like Clark said, starvation diets aren't realistic. I racked up my credit card; but not buying anything until it's paid off is unrealistic. So I reward myself with something every $600 I pay off. Instead of eating out twice a week, I eat out once per week.

When making a purchase I only buy things "I absolutely must have!!" I avoid buying things I'm on the fence about, or may regret. It's a lot more satisfying to own fewer, better things that you researched and bargain hunted for.

By Dylan @ 06/25/08 01:43:01 PMreport abuse

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Jun 24, 2008 -- Could you withstand a 50% decline in income?

What others are saying