Preparing Your Personal Finances

Being Prepared for Loss of Income

The airline industry is an incredibly dynamic one. External economic factors play a significant role in the business operations of airlines. Some of these external factors can include volatility in fuel costs, natural disasters, pandemics, and other large-scale scenarios. Because of the dynamic nature of our industry, it is important to be prepared for a sudden loss of income that may occur as a result of furloughs, downgrades, or complete shutdown of an airline. This can happen to any airline irrespective of size and age of the company, and thus, to any pilot who flies for a commercial airline. Beyond the dynamic nature of the airline industry, it is a best practice for you and your household to be financially prepared in the event of an emergency.

Creating a Budget

The first step to being financially prepared is to create a household budget to determine the amount of income that comes in to and the amount of expenses that go out from your household. To do this grab your most three most recent bank and credit card statements. Using this worksheet as a template, list out each item and the amount that your household spent on that item in one month. Once you’ve properly categorized your expenses and calculated how much was spent on each category, it’s time to look at which of your expenses are non-discretionary and which are discretionary.

Non-discretionary spending are items such as your mortgage or rent, any car lease or note payments, utilities, groceries, commuting expenses, automobile expenses, medical expenses, and any other spending that must be done to live and work.

Discretionary spending is any spending that is not part of the non-discretionary bucket. This includes entertainment, dining out, vacations, hobbies, etc. Take note of which items are non-discretionary, as this will come in handy when you are determining which items can be suspended or eliminated completely.

Eliminating Expenses

There are numerous ways you can reduce or eliminate monthly expenses. You will typically only be able to reduce non-discretionary spending. Discretionary expenses can typically be suspended or eliminated completely. Even a small reduction can add up to a large cost-savings over a longer term—cutting as little as $100 in expenses per month adds up to $1200 a year.

There are numerous resources out on the Internet with some ideas, but here are a few possibilities:

Switch to a lower-cost cellphone, Internet, or cable TV plan. Some services will allow you to renegotiate your contract with them if you can prove economic hardship;
Consolidate credit card debts into a single, lower interest loan or refinance your auto or home loan. Personal loans from your bank or credit union are generally lower interest rates than most credit cards. Check local credit unions to see if they have personal loan opportunities for members of the community—credit unions are considered non-profits, so their interest rates will be very competitive compared to a retail bank. Rates for a refinance will generally be lower than for a new auto or home loan;
Consolidate, switch repayment plans, or defer student loans. Most student loan borrowers are repaying multiple loans at various rates. Most student loan servicers will allow you to consolidate all your loans into a single loan at a lower interest rate. Your situation may also qualify for a deferment or forbearance. The requirements for deferral or forbearance will be outlined by your student loan servicer or lender;
Pause or cancel monthly memberships and subscriptions—take a look at your budget worksheet and determine which items are non-essential. Small subscriptions can add up;
Cook more meals at home and pack your lunch instead of buying—packing your lunch every day can save you $5-10 a day, or $25-$70 a week. Or, make your own coffee to save $3-$10 a day, or $15-$70 a week. Packing your lunch and making your own coffee can add up to $500 a week or $6000 a year!
Buy non-perishable groceries in bulk and buy generic or store-brand items when possible. Most stores source their generic products from the same manufacturers as the brand-name items. You may get the same quality at a large savings;

Managing Debt

You may be in a situation where you have multiple credit cards and a debt consolidation loan is not an option for you. If you’re in this category, there are ways you can tackle your credit card debt. Two popular methods are the “Avalanche Method” and the “Snowball Method.” Both methods give you a specific plan to pay down your credit card debt. A quick Internet search for these two methods should yield several results with templates and examples. In short, both plans attack your debt with a combination of making minimum payments on all your cards while prioritizing either the card with the lowest balance or the highest interest rate. Whichever route you decide to take, you should never make just the minimum payments on your credit cards—taking this route will inevitably end in balances never being paid off and interest simply compounding at an increasingly high rate.