Adjusting to Our Falling Income

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 business.

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 enough.

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 holding 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.

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