Could you live with a 40 percent pay cut?
That's likely what many Americans are doing as they return to work but suffer huge reductions in pay, said Kenneth Couch, an economics professor at the University of Connecticut.
"It is a pretty good guess that displaced workers are currently experiencing immediate pay cuts of around 40 percent," said Couch, who based the estimate on his own research.
Couch found that workers who lose jobs during a recession suffer earnings losses of at least 20 percent six years later, compared with being continuously employed. That assumes the worker held the original job for at least three years.
With dramatically less income, finding ways to earn more money is a priority. But in the short term, many re-employed Americans will have to survive by cutting spending.
How do you live on 40 percent less income? Here are some ideas:
* Stop saving. Saving money is good, but in times of crisis and transition, priorities shift. So, stop adding to cash savings, college funds and retirement nest-eggs. If your situation isn't dire, perhaps you contribute only enough to a retirement plan to get a company matching contribution if your company offers one.
* Stop paying extra on debt. During a crisis, pay the minimum on credit cards and other consumer debt, and stop paying extra on your mortgage payment.
* Whack fixed expenses. These are expenses that you must pay. You want as few as possible. So cancel unnecessary subscriptions, whether to the fitness center, the video-by-mail service or pay television.
* Scrutinize variable expenses. You can't get rid of some expenses, such as electricity, gasoline and heating. But do what you can to reduce those costs. They can be as simple as lowering the home thermostat 3 degrees or trying to group errands to save on gas. Take a hard look at spending on entertainment, dining out and gifts.
* Downscale vehicles. Car payments are a huge cash drain, with money going toward an asset that is plummeting in value.
If your situation is serious and you can sell your car for more than it's worth, consider a much less expensive used vehicle that you pay for with cash. Some multivehicle households could consider selling one car.
* Move. Selling your home or moving to a less expensive apartment may be a last resort.
If your house payment, including principal, interest, real estate taxes and insurance, is about half of your gross income, you may need to sell.
If you start getting behind on bills, remember to maintain your four pillars of security: food, shelter, utilities and transportation.