Seven Easy Steps for the Downwardly Mobile

Here, from someone who has been there and lived to tell the tale, is your handy guide to downward mobility.
Yes, you can live without the late-model Lexus. Photographer: The Asahi Shimbun via Getty Images

Today's Wall Street Journal contains handy tips for people who have gotten a job after an extended period of unemployment. As someone who eventually got a job after being unemployed for a couple of years, I obviously couldn't resist reading it. Which reminded me of an article I've been wanting to write for a long while: the short-form guide to being downwardly mobile.

Because let's be honest: This is how lengthy spells of unemployment often end -- when you accept a job that pays less than you used to make. (In fact, a fairly recent paper by Alan Krueger and Andreas Mueller suggests that if people lowered their salary expectations faster, we'd have less long-term unemployment in the first place.)

That's certainly what I did. The first full-time job I got after business school paid a third of what I'd been expecting as a management consultant. Unfortunately, I had management-consulting-sized student loans, not journalist-sized ones. And did I mention that the job was in New York?

So here, from someone who has been there and lived to tell the tale, is your handy guide to downward mobility.

A few caveats: This is not for someone who has been, say, widowed and left with three small children and no life insurance. Nor for someone whose minimum-wage job just got cut back to half time. I'm talking to normal people who have less than before, but not less-than-subsistence.

That said, your average management worker's idea of the decent minimum is not really that minimal. Your grandparents lived on much less, yes, even in the golden '50s (look at the size of the average houses, the number of bathrooms, and so on and so forth). You can be just as happy with less as they were -- happier, because you'll still have the benefits of modern medicine, telecommunications and food processing.

--Step 1: Count your blessings. Still have all your limbs? Not afflicted with leprosy? Living in a liberal democracy? Then you are probably going to continue to be decently healthy; have clean, disease-free water (hot or cold!) whenever you turn on the tap; more than enough to eat; and a wealth of community amenities and free entertainment options. Things that are not as nice as what you used to have are still pretty nice.

--Step 2: You need a budget. That budget should be, as Dave Ramsey says, "on paper, on purpose, before the month begins." Every dollar in your paycheck should have a destination -- food, clothing, mortgage, savings, etc.

--Step 3: You need to save. After you make your budget, you might think that you don't have anything left for savings. The common response is to say "We can't afford to save after I took a pay cut." That is also the absolute wrongest thing you could say. After you take a pay cut is when you need savings most, because you have less room to cash-flow emergencies.

Your budget needs to include three kinds of savings: emergency fund (most urgent); sinking funds for replacing stuff that is obviously going to need to be replaced (medium-urgent); and long-term for college and retirement (less urgent, but you can't put it off for more than a few years). If you can't fund all three, you need to proceed to Step 4.

--Step 4: Get rid of stuff you can't afford. If there is no room in your budget for savings, then some of the stuff you own has to go. And I don't mean random junk in the garage; rummage sales are not a reliable way to finance a long-term budget shortfall. You have to cut things that have large payments or maintenance costs: houses, cars, boats/second homes, expensive activities for the kids. I understand that your kids are going to be heartbroken if you have to take them out of things, or a school district, that they love. However, they will also be heartbroken if you get taken out of those things by the bailiffs who show up to evict you and sell your furniture.

Say it with me now: Now, more than ever, I cannot afford to live up to the edge of my income. Keep saying it until it sinks in that no matter how sad it makes you and your family, you need to adjust what you do to the income you have, not the income you used to have, or the income you hope to have, or the income you think you deserve. My new book on failure has a whole chapter on where this gets you: bankruptcy court.

--Step 5: Be honest with yourself and everyone else about what you are doing and why. Here's a little exercise that will help. Go into the bathroom and look in the mirror. That's right, take a long, loving look at yourself -- you're doing a great job staying employed and taking care of your family in tough economic times. Now I want you to repeat after me:

"I can't afford it."

That's what you say to your kids when they want to do something you don't have the money for. It's what you say to your sister-in-law when she asks why you're moving to a smaller house in an unglamorous neighborhood. It's what you say to your friends when they want you to go out for the kind of event that is no longer in the budget. It's what you say to the salesman who wants you to buy something out of your financial league.

Not "You really wouldn't like ballet."

Not "I hated having to clean all those extra rooms."

Not "I'm busy on Friday night. Every Friday night."

Not "I don't really like the way the Lexus drives."

Just the simple truth: You can't afford it.

You are saying it because there is nothing shameful in having less money than you used to, or less money than your friends and family have. You are saying it because no one who is worth having around gives a damn how much money you have. And when you tell people the truth, instead of trying to come up with workarounds for your completely fictional excuse, they can plan around the actual problem, which is that you don't have that much money.

Case in point: When I was broke, I had two choices -- I could try to keep up with my friends who had MBA-level jobs, which would result in my going bankrupt, or I could pretend I didn't want to hang out with them. I picked choice three: Explain that I couldn't afford any activities that required any amount of money, even sums that seemed trivial to them, like $10 for a movie. I had some lovely picnics and potlucks with friends who completely understood that journalists don't make much money, because why would that offend them?

(Note: Some of your friends and family will offer to pay for stuff. Don't let them. You will feel bad about it, even if they don't, which will be all kinds of unhealthy for your friendship. Gifts are accepted once a year, on birthdays, not once a week, on Friday nights out with the girls.)

--Step 6: Don't count on things getting better in the future. You should absolutely hope that they do and do your best to make that happen. But you budget for now, not what you hope to have later. It's fair enough to wait to sell the house so that your second-semester senior can graduate with her high school class. This does not extend to maintaining a house with a mortgage that consumes 60 percent of your take-home pay because your fourth-grader really loves her school and you're hoping that your commissions will be better next year.

--Step 7: Notice that things aren't actually that bad. We now return to Step 1. Yes, you have lost a lot. But if you've acted quickly and have been honest with yourself and your loved ones, you should still have the things that actually matter in life: food, warmth and shelter; your health; family and friends. The rest is decoration.

This all probably sounds a little brutal. Don't I care about how upset your kids are going to be? Don't I understand that you need a safe car to drive those kids around in? Don't I understand how much you need to see your friends?

I do understand all of these things. (Though I would point out that "safe" is not, as so many moms seem to think, actually synonymous with "late model.") I don't like the thought of kids having to leave a school they love any more than you do, or any of the rest of it.

But when you're downwardly mobile is exactly when you need brutal, because you are going to be very tempted to fool yourself about what you can afford. What you can afford is a function of the numbers in your bank account, not how you or anyone else feels about it.

And again I point out that in a rich Western democracy, the truth really isn't all that brutal. Less than you had is still more than almost anyone in history has ever dreamed of.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.