234 | When Circumstances Change

Spending 50% or more of your income on housing alone isn’t sustainable (even if you live in California or New York).

Yet, I’ve talked to so many lawyers in this exact situation.

And often, it’s the result of a change in their circumstances that caused a drop in their household income, but there was no corresponding change in their housing situation.

In this episode, let’s talk about my thoughts and suggestions for any lawyers who find themselves in this place.

• • lawyers’ tight financial situations due to changes in their circumstances
  • guidelines for housing payments
  • reasons lawyers have told me they don’t want to change their housing situation
  • why we can’t let these reasons keep us in a situation that’s not working
  • the main question to guide your decisions in this situation
  • suggestions for how to get yourself back on track
  • the truth about the options available to you

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords. By the way, if you’re a lawyer who’s struggling with debt, you’re probably making at least one of five common mistakes. Grab my free guide on how to correct those mistakes and finally get out of debt for good. Head on over to rhothomas.com/guide. That’s G-U-I-D-E.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about managing your finances as your circumstances change, and the changes that you may need to make in your life because of the changes in your financial circumstances. I’ve talked to a number of lawyers over the years who are in these really tight financial situations, and they are spending more than they make, and they’re going into debt, and they’re living paycheck to paycheck, and with these particular lawyers that I’m thinking of like these particular situations, their finances weren’t tight until some change in their circumstances, and it was typically something like Getting a divorce or getting laid off, or the spouse passing, or something like that, and it caused their household income to decrease significantly. The biggest issue with everyone that I’ve talked to in these situations is their housing payments. So because of the decrease in their household income, the amount that their housing payment, the amount of income going to their housing payment, significantly increased. So we’ve talked before about my guideline on housing you want to keep it to about 25% or less of your take home pay. I’ve seen people go a little higher, like up to 30% but beyond that, it gets kind of tough. And I know, like my business bestie, Jessica Medina, has worked with some clients who are closer to, like the 33 to 36% range. But in those instances, they are out of debt. They don’t have a lot of money going to other things, and so they’ve got more wiggle room to have more going to their housing. Like the clients that she works with are a little bit different, because she works with people who are transitioning to different roles in their career, versus a lot of my clients are working on getting out of debt, saving and that kind of thing. So sometimes her clients don’t have debt, and that allows them to be able to take that housing payment a little bit higher because they’ve got more wiggle room. But either way, on the high end with the housing payment, we’re talking about maybe 36% being able to work. But a lot of times when these situations come up, when people’s circumstances change, they’re getting up to 5060, even 70% of their income going just to their housing payment. Maybe the housing was within that 25% guideline before whatever change in their circumstance, but after the change, it’s way outside it, and these lawyers are like holding on to that housing situation, holding on to the house that they’re in, or holding on to the apartment that they’re in, and they haven’t changed their living situation. A lot of times, people don’t want to give up the house that they’re in because they view it as taking a step back. Or people have also told me that they don’t want to disrupt things for their kids, like they want their kids to be able to stay in the same school. Or sometimes they’ve said that they’re just comfortable in the area that they’re in. They don’t want to move or they can’t find something that they like in their price range, like all of that kind of stuff. So I want to talk about each of those a little bit deeper. Number one, we can’t let our ego get wrapped up in the things that we’ve been able to accomplish, or the house that we’ve been able to get into, or the apartment that we’ve been able to get into. So being in that particular place does not define you. You are just as successful whether you are there or whether you’re in another place. And if you keep not making changes because you don’t want to feel like you’re taking a step back, what probably is going to happen is you’ll end up taking multiple steps back, because the situation isn’t sustainable. Number two, we can’t use our kids as the reason that we make poor financial decisions. First, it’s your decision not to move, not to make some other change to your living situation, right? It’s not your kids that’s on you. But second, kids are resilient. Like when people are talking about not wanting to move because they don’t want to disrupt their kids lives, I’m like, your kids will be fine. I moved three times, and we’re not just talking about like moving to another neighborhood in the same city. I moved from the South to the Midwest, to the northeast, back to the south, again, all between second and 10th grade. And I’m fine, right? Your kids will be fine. Kids are a lot more resilient than we sometimes give them credit for. Another thing your kid probably wants for you not to be having to stress over money versus being able to stay in the same house that they’re in. Number three, we definitely don’t want to use our comfort as the reason that we stay in a situation that’s not working, or our preferences, like the people who talk about not being able to find a house that they like, those are not a good reason to stay in a situation that’s not working. Because are you truly comfortable if you are stressed about money all the time and you’re digging deeper in debt and that kind of thing, right? Is it worth it to keep digging further into debt to be able to stay in this particular house just because you like it like those are the kinds of things you want to be asking yourself. And that brings me to the main thing that you want to be thinking about if you’re in this situation, and that’s, is it more important for me to stay in this particular living situation, or is it more important to stop the bleeding in my finances? Because it’s not sustainable for you to have a housing payment that’s taking up 50 or 60 or 70% of your income. We don’t get to ignore numbers just because we want to stay in this particular house, right? Things have changed, and when circumstances change, then we’ve got to look at what else needs to change because of the new financial situation that we find ourselves in. Do so that probably means doing something that you don’t want to do, or doing something different from what you’re doing now, if you’ve got savings set aside, that savings might help you for a few months, right as you get back on your feet. But if, after that time, if after a couple of months, you’re not back to the income that you were at before, or something very similar, then you’re going to have to do something different. We need to get you back into a situation where your housing is around that 25% range of your income, because we’re not just going to run through all the savings and start running up a bunch of debt just for you to be able to stay in the exact same situation, like in that exact same house or apartment or whatever the living situation is, that is a recipe for disaster. So what can you do if you find yourself in a situation like this, where circumstances have changed and now your house is too expensive if you are set on staying in the same house, the first suggestion is to bring in more income so you could get a higher paying job, you could get a second job, you could get a third job, you could get a Side Hustle, where you’re bringing in more income, because as you bring in more income, that will help bring down the percentage of your income that your housing is taken up. Another suggestion, if you want to stay in the same house or apartment is to bring in a roommate. So I heard a story years ago now, about two single moms who wanted to keep their kids in the same school district, in the same school that they were in, and so they, like, got a house together, or one moved into the other’s house, or something like that, but they were able to split expenses. So even though they’re in this more expensive area, they aren’t taking on all of those expenses by themselves, and so being able to split expenses allowed them to stay in that area but not be digging themselves into debt and running through all of their savings and all that kind of stuff. They got into a living situation that made things more sustainable for themselves and still allowed them to keep their kids in the same school. So you could also rent out extra rooms or rent out a basement area on, you know, a site like Airbnb, or you could rent out storage space. There are all different sites and apps and stuff that allow you to offer storage space in your house that people can pay for. The idea is to bring in some income that helps to cover some portion of your housing payment, so that your portion, like the amount that’s coming out of your check, is in that 25% range, or a lot closer to it than it is now. And finally, you can move. I know you want to stay here. I know that you don’t want to move you like this house or this apartment or whatever. But if you can’t make the numbers work to where you are not digging yourself into a hole and going deeper in debt, then that makes the most sense. You may have to live somewhere that you don’t like for a while. You may have to be in a smaller house or a different neighborhood. It doesn’t have to be forever. It’s just until you can get your finances back to the place where you can support the kind of house that you want to be in. But that’s not going to happen if you’re blowing through all your savings and going deeper into debt trying to make an unsustainable situation work. Because what can happen, God forbid, is you end up losing the house anyway, once all the money runs out, all the credit runs out, and then you are in the same place that you would be in if you just made that decision on your own earlier. And I’m not wishing that on you. I’m not wishing that on anybody. But that’s real. That is something that can happen. The changes that I’m suggesting might feel uncomfortable, but it’s also uncomfortable to be living paycheck to paycheck and going deeper in debt and stressing about your house and how much all of the bills are and all that kind of stuff like. It comes back to this question of which is more important to you, keeping things exactly as they are, or making some changes, stopping the bleeding, getting back on your feet. A lot of people are telling themselves that they don’t have a choice or they can’t do anything else, when the truth is they’re just not willing to. It’s not that you can’t change, it’s that you don’t want to, because there are many options available. They just might not be options that you like. So at the end of the day, when our circumstances change, we have to change the way that we’re handling things. We have to make different decisions in line with the circumstances as they are, not as they used to be. We can’t continue on doing the same things that we were doing when our circumstances were different. When your circumstances change, you have to change what you’re doing to fit your new circumstances, otherwise you will be stressed and struggling and living paycheck to paycheck and going further in debt and wondering why you can’t get ahead. And the reason why is that you’re still trying to live like you were when your finances were different, when your circumstances were different. I know all of this might feel a little spicy, but I’m telling you this because I love you. There are way too many lawyers who are in this situation, and I want you to be able to get back on your feet and get out of this hole. I’ve had this conversation three times in the last week, and I’ve had it many more times over the last four and a half years or so. So that’s why I wanted to do this episode. And I hope that you take it in the spirit that it was intended. I hope that it’s helpful for you, and I hope that you take it to heart and actually do the things you need to do to turn things around for yourself. All right, you got this. And as you start turning things around, make sure you grab my free guide that will teach you how to get out of debt in the most effective way you can get it at Rho thomas.com/guide you All right, so that is it for this week’s episode. Please take a second, subscribe to the show, leave a review. Both of those things show the platforms that this show is helpful, that this show is valuable, which means that they will suggest it to other lawyers. My goal is to get this information in the hands of as many lawyers as I can, and as always, I appreciate your support. As we close out, friend, I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to regain control of your time, build wealth and live the life of freedom and choice you deserve. Talk to you later.