Adjusting to Our Falling Income
March 2013 - By Steve Gillman
As you might expect, it was much more fun when our income
was rising. My wife and I started to make a living online about
eleven months after starting our business, and the revenue just
kept going up year after year. At some point we were making 600%
of what I made at my best job in the past. But now we are dealing
with a falling income. In fact, it has been dropping for two
years now, and is off about 75% from the top. For those math
wizzes among you, that still leaves us with more than that best
job used to pay, for which we are grateful. But then it continues
to go down, despite the addition of jobs (something we haven't
needed in the last eight years), and many efforts to revive the
Why our internet-based revenue is down is another story, one
that is probably not interesting to those who are not doing business
online. It has to do with large players taking over the industry,
the impossibility of figuring out what a computer algorithm at
Google values in in search results (it is not just quality information),
and my lack of marketing skills. In any case, it was fun while
it lasted, and still almost pays the bills. But this piece is
being written as a warning to others and a look at what it means
to live through ups and downs in income.
The warning I offer is this; do not assume that your income
will continue to rise or even stay the same, and be prepared
for it to go down.
We were prepared, at least in the basic financial ways. We
had (and have) no debt. We had even paid off our mortgage loan
early on our home in Colorado. That helps when the monthly profits
(or paychecks) start to get smaller. We had saved some money
as well, so we were ready for the transition of moving to Florida,
where there were more job and business opportunities (and warmer
winters). It always helps to have some flexibility, and money
in the bank provides that.
The psychological adjustment to a falling income is perhaps
the greater challenge. We were fortunate that we never did live
up to our previous income. Eventually we did get used to the
idea that we could eat out whenever we wanted and buy routine
things without concern for getting the best deal. We did spend
quite a bit traveling and eating out. But we still cut our napkins
in half at home, and shopped sales to save money. Frugal habits
die hard, and that's a good thing.
But despite never being extravagant when times were good financially,
we did get used to the ease of making decisions. Tooth is hurting?
Go to the dentist tomorrow. Hungry and five miles from home?
Stop for a meal. Hear about a good book? Make a few clicks online
and buy it. A family member needs some help? No problem.
That ease is gone to a large extent. Now we once again have
to consider carefully how old the next car we buy will be, whether
to buy oranges or apples, and whether or how we can afford to
go to Key West for a weekend or an overnighter (we'll use our
Hyatt credit card points for a free night, and eat snacks in
the hotel room for at least one meal).
In some ways it is a pleasant challenge to have to think about
and figure out how to afford things. Maybe that's just our personalities;
it never bothered us to tear the napkins in half, and it was
fun to use buy-one-get-one-free meal coupons for restaurants.
But at the same time it can be nerve-racking to hear a new sound
in the car and wonder if there is a $500 repair coming soon,
or to have the dentist hand us a paper outlining a $9,000 plan
for proper care (fortunately he was wrong according to the other
dentists we consulted). It isn't nice to have to think twice
about donating to a favorite charity. All things considered it
is better to have more money rather than less, at least up to
a point (and I'm not sure where that point would be).
Lessons of the Fall
It Can Happen to You - There are perhaps more possible
jobs, businesses and investments than ever before, but uncertainty
seems to be greater as well. Businesses can fail for reasons
outside of your control, and jobs are all temporary now. Be aware
of the possibility of a drop in income and be prepared.
Eliminate Debt - It would be so much more stressful
to face our declining income if we had a heavy debt load. Even
when we were upper-middle-class we bought a three-year old car
for cash rather than spend a few thousand more for a new one
that would require a loan.
Develop Frugal Habits - If you see it as a game or
challenge, it is enjoyable to discover and implement cost-saving
measures. Going to a used furniture store to buy a table is like
going on a treasure hunt. Those habits will make life much easier
if you happen to lose a job or if your business falters.
Keep Fixed Expenses Under Control - We traveled and
ate out at restaurants quite a bit, but these are activities
that can be reduced or eliminated at a moment's notice. We would
have been in trouble if we had a large house to maintain or big
car payments or other large expenses that would have been hard
to get rid of quickly. Enjoy life without locking in high regular
expenses any more than is necessary.
Learn to Have Inexpensive Fun - It can be a nice challenge
to look for cheap entertainment. We've found ways to see free
movies, get free meals, free museum admission and so on, all
here in Naples, Florida, which is known for being the home of
the rich. In fact, I suspect we have seen as many movies and
eaten out more here than we did in the past. We are having a
good time in our new home, and without spending too much. On
my personal blog post about living
cheap in Naples you can read about the $10 six-hour ocean
cruise we took, with unlimited gourmet food included. It can
be very stressful to lose most of one's income, but finding ways
to enjoy life on a budget helps keep it from getting depressing.
Plan Ahead - If you suspect an income drop is coming,
don't wait until it arrives to start planning. Start looking
for ways to cut costs, and ways to generate more income. We moved
before the last 50% drop in income, and we have since found three
jobs and bought
and sold a condo at a profit because the opportunities are
here (much more so than in the sleepy town in Colorado we came
from). Our additional income has almost offset the continued
drop in business revenue, but only because we took action quickly
Downsize if Necessary - We sold our house in Colorado
and bought a cheaper condo here. Normally you'll want to look
for a place that will lower your monthly costs. Our monthly housing
cost is higher now because of the association dues (and houses
are just too expensive here compared to condos), but that's the
price of living where there are more opportunities. However,
we did free up some capital for investing in a new business or
a rental property.
Do What You Have to Do - I don't particularly like
having a job, but I did not want to wait until we started eating
up our savings before getting busy bringing more money in. I
have worked at construction cleanup and even stood by the road
up signs in recent months, and now work as a driver of an
electric tram or shuttle that ferries people from their condos
to the beach at a high-end private community. The work isn't
bad, and it is seasonal, leaving time for investing in real estate
or staring a business. Meanwhile, the income, along with our
other sources, keeps us from eating into our capital. That capital,
and the people I meet, provide for the possibility of someday
rebuilding our falling income.
Be Proactive - This is the summary of and most important
point about the lessons outlined above. You can't be too passive
about what's happening if you want to survive and thrive. Take
action, and do so before you are in serious trouble.