Step 2: Redo your budgetI've written before about how to stage a financial fire drill: Create a "baseline budget" of bare essentials such as food, shelter and utilities. It's a good idea to know how little you could live on if you had to, says CPA Sally Herigstad.
"Once you figure out the baseline budget, you can start adding (items) back to something you can live with," says Herigstad, the author of "Help! I Can't Pay My Bills!" and a regular contributor to MSN Money.
Starting in January 2006, Jaime and Matt allowed $300 a month for groceries and other necessities, plus $25 a month each for fun money. They dropped cable, reduced their phone plan and switched car insurance several times to get the best possible deal.
The fact that Jaime got pregnant a few months later lent a sense of purpose to their plans. "Once you're really both committed, it becomes a game," says Matt.
By the time their son Finley was born in December 2006, they'd paid off most of their debts and banked $23,000. Jaime received reduced pay during her three-month maternity leave, and that income also went to debt repayment. She ended her leave by returning to her old job for a little over a month, then gave notice when the last of the student loans was paid off.
If you are downsized involuntarily, implement a baseline budget right away.
Step 3: Live on the single paycheckThose who plan to leave their jobs have the luxury of a trial run to track how well a single paycheck covers costs. According to Ellie Kay, the author of "Half-Price Living: Secrets to Living Well On One Income" and "The 60-Minute Money Workout," people often forget to factor in small or irregular expenses: oil changes, haircuts, piano lessons, birthday party gifts, auto repairs, class trips.
To build an accurate budget, Kay says, "you need to (scrutinize) your checkbook and your credit card statements -- those don't lie."
If you've lost your job, you have no choice but to live on a single income (plus unemployment, if you qualify). You do, however, have a choice about how you live: griping and feeling sorry for yourself, or framing this as a temporary setback.
"It's just for a season. It's for a very clearly defined goal," Kay says.
Certain expenses will go down. The nonworking spouse won't need a professional wardrobe and can help reduce costs by looking for grocery deals, cooking at home and caring for any children instead of paying for after-school or day care. Two-car couples won't spend as much on insurance if one vehicle isn't being driven to work every day. You might even decide to get rid of one car.
One expense that should be factored in: retirement savings for the nonworking spouse. "That's a big mistake people often make when they get out of the work force. That could really cause problems (later)," says Kimberly Palmer, the author of "Generation Earn: The Young Professional's Guide to Spending, Investing and Giving Back."
Suppose you do manage to live on one paycheck during the trial period. What to do with the second income? Bank it, of course. It becomes your emergency fund. (Already have such a fund? Well, now you have a larger one.) If you don't have one, read "An emergency fund out of thin air."
Step 4: Look for other ways to make moneyIf you can't get unemployment and nothing's available in your field, consider selling belongings, taking a stopgap job or even creating your own work. Spicer did freelance computer consulting, sold off his company's construction equipment and, over time, short-sold most of the properties. Carolina marketed many of their personal items online, which Spicer now says was a good move because it reduced clutter.
The biggest change, though, was Spicer's creation of SkyLedger, a Web-based accounting system he designed from software he'd previously developed for his own business. SkyLedger has become a full-time job, and he continues to work as a computer consultant.
Jaime did a little freelancing (managing a video project for friends) when Finley was 6 months old. By 2008, she had started in a new field, business coaching. She worked briefly at a local company, but when the hours got too long she decided to work from home. Jaime blogs about successful business and life strategies at Eventual Millionaire, but this does not bring in extra income, as she decided against putting ads on the site.