The Two-Income Trap by Elizabeth Warren; Amelia Warren Tyagi Read Free Book Online Page B

they struggled to survive in hard times. But, as we will show in the next chapter, the risks of the world did not stay the same. Families lost the stay-at-home mother just when they needed her most.

7
    The Financial Fire Drill
    H ow should a family protect itself from the Two-Income Trap? The deck is stacked against today’s parents who struggle to solve financial problems on their own. A generation of bidding wars has launched an army of competing buyers against any family that tries to cut back on its spending. And a generation of layoffs, divorces, and spiraling medical costs has hit pretty much everyone. In the pages of this book we have offered suggestions for collective action—recommendations for Congress and state legislatures, political action groups and faith-based organizations, school districts and community institutions. We firmly believe that collective action is the most effective remedy and that it is essential for reestablishing the economic security middle-class parents so badly need.
    But such changes take time, and families need to safeguard themselves now. So what should a family do? For starters, everyone raising a family should read a good book on financial planning. But be warned: The basic premise of most of these books can be misleading, even dangerous. They show how to draw up a budget or choose a mutual fund, but in most cases their advice is aimed only at those lucky families for whom work is steady, everyone is healthy, and there are no emergencies. Disaster—a lost job, a premature birth, a divorce—is the defining theme of the financial lives of millions
of families, but it doesn’t appear in most financial advice books—or in most families’ financial plans.
    Any firefighter will explain that the time to prepare for an emergency is before the house catches on fire. Install smoke detectors, get the oily rags out of the garage, run through a practice fire drill—and do it now, when there is no smoke in the air. The same advice should hold for financial protection. In the same spirit as a fire drill for home safety, the clever parent should run her own financial fire drill.
    A financial fire drill should pose three questions:
    1. Can your family survive without one income? If your family is like the average two-income family, then you face a one in sixteen chance that in any given year, at least one of you will lose your job. 1 If you are a single parent, you actually face smaller odds of a layoff (because there is only one person at work), but the consequence of a job loss can be even worse if that sole income disappears. In either case, the litmus test is the same: Can you survive for six months without one of the incomes that you currently rely on? If you are a married couple with only one earner, then the question is easier: Could the stay-at-home parent enter the job market if something happened to the primary breadwinner? Regardless of your group, if the answer is no, then it’s time for some disaster planning.
    2. Can you downshift the fixed expenses? If you are having trouble making ends meet, the average financial planning book advises you to “pass up those impulse purchases or another dinner out” so that you can save more and get out of debt. 2 But the experts have it exactly wrong. If you eliminate all the treats now, while times are good, then where will you cut back when a real financial crisis appears? Take another look at your budget. If you are feeling squeezed during ordinary times, it is likely that you have a much bigger problem than an occasional dinner at the Olive Garden. You have a problem with your fixed costs.
    Now is the time to take a hard look at the necessities, not the frills. If you’re having a difficult time making ends meet, think about lowering your fixed expenses. Can you manage a few more years without a new car? Can you sign up for the lower-cost HMO, even if that
means shifting the kids to a different pediatrician? Would your toddler be all