A financial advisor explains how to adjust your living allowance when your income drops, focusing on cutting expenses to avoid debt problems and keep spending aligned with what you actually earn.
Now, we went through your living lapse when you first settled with us, and we said, what do you need every week for your food, your fuel, and your entertainment? So we came up with that figure. Let's call it $500, for example. That $500 is just for you to spend on you. It's not to pay for any bills or rates or birthdays or Christmas. It's just to spend on you every week. And we want you to spend it and not feel guilty about it. So that $500 covers your food, fuel, and entertainment. If your income changes from when we set up that living allowance, that is, you're earning $100,000 per year, and now you're only earning 75 grand per year, we must adjust the living allowance in accordance with that. Where we've had so many minors who have been made redundant come into trouble is when they've been earning 100 grand a year, they were made redundant, and all of a sudden they're now in 75 grand a year, but they're still spending like they were earning 100 grand a year. So this is a very, very basic equation. Income minus expenses, minus interest equals debt reduction. If your income reduces, your expenses must reduce in the exact same proportion to that drop in income. You can't continue to live like you're earning 100 grand a year when you're now only on $75,000 per year. So it's very important you make that adjustment and also mentally make that adjustment. A lot of people just keep spending like they were earning the bigger dollars and. And unfortunately that comes unstuck when it comes to paying down their debt. So if your income reduces, please get in contact with us and we can adjust your living expenses so you are still reducing your home loan at the same pace to have you debt free in 15 years.
