Megan from Los Angeles called into The Ramsey Show with a heart-wrenching money story (1).
Just weeks earlier, her husband was pulling in between $10,000 to $15,000 a month.
But everything changed when he, the main income earner, was incarcerated for up to 10 years. Just like that, the family went from five figures a month to relying solely on Megan’s roughly $4,000 after-tax income.
Now, she’s covering mortgage payments, private school tuition for two kids and daily expenses solo.
“I’m just trying to get ahead so I don’t get behind,” Megan told cohosts Jade Warshaw and Ken Coleman.
The sudden life event flipped this family’s finances upside down and has left one partner on their own financially, trying to figure out what to do next.
Megan’s story is a reminder that income shocks can come out of nowhere. Even for families that are doing fine financially, all of a sudden it can feel like they’re treading water, fast.
Megan’s husband runs a landscaping business and the couple also has three rental properties. Between running the business and maintaining the rentals, her husband had been bringing in the bulk of their household income, but now Megan has to figure out a plan.
Warshaw advised that the first step should be to get very clear on “how secure of a position” the family’s finances are in, including how much debt they’re holding. Megan said the only debt they have is mortgage: $260,000 on their home and $140,000 on one of their rental properties.
“It might be worth it,” Warshaw said, “to offload one of these mortgages, take the equity and pay off all of your consumer debt. Because you want your expenses as low as possible going in.”
For Megan, that would wipe out $4,000 they now pay on their home’s mortgage each month. A big savings.
From there, protecting cash flow will mean focusing on the essentials: food, housing, utilities, health care and transportation come first. Everything else, whether its subscriptions, dining out, impulse purchases or other “nice-to-haves” should be put on hold, for now.
Read More: The average net worth of Americans is a surprising $620,654. But it almost means nothing. Here’s the number that counts (and how to make it skyrocket)
Financial experts often recommend using a zero-based budget, where every expected dollar is assigned a specific job before the month begins. Having a clear plan can help reduce stress and lower the chances of being blindsided when in a survival budget mode.
