Jun 6, 2024
It can be difficult to plan for a loss of income. For most families, a drop in earnings is often unexpected and sudden.
However, even families that voluntarily abandon a source of income can struggle to make ends meet without a safety net in place.
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Emily and her husband, who live in Grand Rapids, Michigan, seem to be on the verge of such a situation. In a recent episode of The Ramsey Show, Emily discussed how her husband’s decision to go back to school for a year could create a 60% plunge in their household earnings.
Dave Ramsey was not a fan of the idea. “Your budget is not tight, it’s impossible!” he said.
Here’s why Americans should create a safety net before making major life decisions.
Unplanned decisions
Only 45% of Americans consider themselves “disciplined” financial planners, according to Northwestern Mutual's 2024 Planning & Progress Study.
Without a robust plan, many struggle with feelings of anxiety and apprehension about their financial situation. Some 33% of adults surveyed by Northwestern Mutual said they feel financially insecure.
Until recently, Emily said, her family wasn’t part of this insecure cohort. She has been following Ramsey’s content for over 26 years and has successfully implemented his 7 Baby Steps method to reduce debt.
The couple’s combined income is $100,000 and they bought a relatively cheap home in 2020 at a relatively low interest rate.
But Emily’s husband was recently approved for a scholarship program to train as an electrical lineworker. The course is intensive and wouldn’t allow him to work part-time for at least eight to 10 months.
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That means the couple and their two children would have to survive on Emily’s annual salary of $40,000 until he graduates.
Emily’s husband could boost his income by completing the course. The median lineman salary is $79,940, according to Lineman Central. And some specialized lineworkers can earn six figures. Emily says her husband could make $40 to $50 an hour as an apprentice and much more with a few years of experience.
But Ramsey said the current plan isn’t practical. He estimates that Emily’s monthly take-home pay of $3,300 isn’t enough to manage all the family’s expenses, especially since childcare and housing cost $2,000 and $1,000 respectively.
“You should’ve figured out if you can afford it before he decided to do it,” he said, calling her budget “fantasy.” To move forward, he recommends major adjustments.
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Safety first
Based on the family’s income and expenses, Ramsey is convinced Emily’s husband isn’t ready to go back to school yet.
“I’m not a dream killer, but I love killing nightmares,” he said, advising that the husband should delay his studies for at least a year. “His primary job is not to become a highwire guy, his job is to feed his family.”
By delaying studies for a year, Emily and her husband can accumulate an emergency fund to serve as a safety net for the family. She could also boost her income and convince their parents to share some of the childcare responsibilities temporarily to reduce costs.
To sum up his thoughts, Ramsey used a quote from Dr.Stephen Covey’s book, The 7 Habits of Highly Effective People: “Begin with the end in mind.”
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
