Need Help with Next Steps...

[Buzzbuzz]

It looks like there is a possibility that I may lose my job this fall.  I bring home (after-tax) about $5,000 a month, while my husband brings home (after-tax) about $2500 a month.

He is completely freaking out (as am I).  I have started looking for jobs in my field but am coming up completely empty (I am extremely specialized and further down the career path than what openings are looking for).  The reality is that there may be nothing for me in my field -- especially once I am looking while unemployed.

He is saying that if I were to lose my job, we immediately need to put up our house for sale and look at down-sizing in other ways.

We paid $240,000 for the house about 2 years ago and owe around $180,000.  Monthly payments are around $1,000 plus $500 for taxes.  No other debt.

We have savings (both restricted (401(k)) and unrestricted) of around $400,000 (depending on how the stock market is doing).   My father is (very generously) in the process of setting up college funds for our two pre-school aged children (this will use up a legacy from my grandmother).   Assuming the numbers all work right, it should be sufficient to provide 4 years at the best public school in the state for each of them when they need it.

Am I crazy to think about staying home with the kids until they are school-aged while re-training in another field and while maintaining our current home?  Quite frankly, I don't love my job and its stresses (outside of the $).  

Is it silly to "use up" savings on preserving the house?  My husband thinks that on his salary alone, our monthly housing bill should not be more than $500.  That is insane to me -- it is do-able, but only by purchasing a new home for little more than our current equity (assuming we can sell the house for what we paid for it).   Houses are available at that price (due to the unusual real-estate market) but only by ending up in a neighborhood I don't want to live in and schools where I don't want to send my kids.

Nothing I retrain for would pay anywhere near my current salary -- however, if I could get something that brought home even $1500 or $2000 a month it seems like we should still be able to keep our current house, right?  Or am I living in fantasy land?

Any advice for dealing with a radical reduction in income? 

By the way -- we are late 30s' in age if that makes any difference in advice.

[mattemma04]

Sell the house now and buy/live  according to your husbands income.Any income you make should go into savings.

[Vaske]

If you lose your job and are down to only your husband's income, then your income taxes will go way down.  It won't make much difference this year, since your potential job loss is coming late in the year, but it could be a big boost to his take-home pay next year, if you adjust his withholding.  The IRS has an online withholding calculator where you can test different scenarios (at least under this year's tax rates; they will update it after the end of the year).  Because of the taxes and penalties, I wouldn't even think of touching 401k money until dire need arose.

Keeping housing expenses to 25% of one spouse's take-home pay is a very conservative rule of thumb, but a good one to follow (if you can) when your income is low.  Your husband seems to be thinking along that line.  You do have considerable savings, and (enviably) more choices than most people have, so please don't panic.  I do not think it would entirely crazy for you to spend a couple of years at home, retraining, or staying in your current house.  But at some point, you're going to have to transition to a lifestyle that you can sustain without eating into your savings.  The sooner you do it, the more you will have left for retirement (but the less you may find that you will need for retirement, as you succeed in living more simply). 

Probably the place for you to start (besides trying to make yourself indispensable at work) is to sit down and separate your fixed expenses from your discretionary expenses, and see where you could most quickly and easily cut spending, if needed.  This would be a good time to practice some creative deprivation, and see what matters most to you.  We find that we feel more secure when our pantry is well-stocked, for example.  The Complete Tightwad Gazette is an excellent book for learning how to live more frugally.

This would also be a good time to check on your state's process for filing for unemployment benefits.

We are living on an income like your husband's, in an area where people have incomes like you currently have as a couple, so it is possible.  But we live in an apartment, not a house, and have to be very careful with our budgeting and spending and wish lists.  Our rent is about a third of take-home pay, and a quarter of gross pay. 

Are there any opportunities for free-lancing/consulting/self-employment/starting your own business in your field?  That may be an easier transition for you than starting completely over from scratch, in a tough job market where so many others are trying to retrain.

[Buzzbuzz]

I guess I'm just in a little shock because it felt like we were being pretty conservative when we bought this house -- we did not use any of my financial information to purchase it.  It was financed solely using my husband's salary/savings info.

Of course, we know how crazy the mortgage industry is (even after the downturn), so I guess I shouldn't be surprised.

There's just a ton to consider -- it seems that if I am able to retrain so that our household income is around $5,000 a month (jointly), we should be able to continue to afford our current home -- its just whether its worth using savings while I am retraining.  Its a bit of a bet -- I may retrain and not find anything given how bad the jobs situation is in the US and particularly our area...

I guess we also need to consider making a nationwide job search (so far have just been looking in our area)...

My husband may also be able to increase his income by another $10,000 or $15,000 a year if he is able to transition into another area.  He has strong training/skill set for it, but he never looked at making the move because he thought it would be boring - I think we are beyond that consideration now. 

Thanks for the advice -- we will go over our budget with a fine toothed comb next weekend and see where we can cut back.  Our biggest non-house expense (childcare) will of course go away but there are a lot more areas to consider.

[Buzzbuzz]

I may be overly negative, but I'm not seeing a way to move towards a self-employment/free-lancing job with my skill set.   I really did let myself become too specialized -- necessary at the time, but not good now!

[phathui5]

What field are you in?

[Frenchie2]

I don't think you are living in a fantasy at all.  I don't know if you would be able to sell your house first of all, by why move out of an area with good schools.  Once my oldest started school, I realized the importance of being in a good district and it has kept us from moving closer to family.  We had a different district for kindergarten and it was really frustrating.  I think that 2-3 years of making sacrifices are worth it to stay in your current house.  With the housing market how it is and the smart way you have saved, I think you will be okay if you make sacrifices that you seem very ready to make.  Good Luck!

[SunRise]

I would try to stay in the house too.  You do not need to deal with so many changes all at once (losing job, selling house, readjusting to sahm, looking for new job etc) I would give yourself 6 months to readjust / transition / enjoy / figure out what you should do. IF you have some emergency fund to help supplement your husbands income, use it...thats what it is for.

[Comtessa]

Can you refinance the mortgage to lower your payments at all?  My DH makes about the same as your DH, and I'm a SAHM.  Our mortgage and taxes run us about $900, which is manageable on our budget and still leaves enough of a cushion for us to tuck away a fair amount into savings every month.  I think $500 is an unrealistic estimate for a mortgage on a family home, even in a low COL area.  If you cut spending in some other areas, you might even be able to manage with your current mortgage payments on his salary; things just might be tight for a while until one of you can bring in a little more income.  Remember, it's not just childcare where you can save by not working -- it's also food (you can buy fewer convenience items, carryout, etc. if you have more time at home to prepare things from scratch) and clothes (imagine the savings by not buying a work wardrobe!) and gas (not driving to work can save a bundle).  You could even, depending on your situation, get rid of a car (assuming you have 2) and save a huge bundle on insurance, repairs, car payment, etc. that way.