I suggest that you be able to meet your financial obligations with your base income defined below. Financial obligations would mean fixed payments and everyday living expenses, plus the maximum deductible contribution to your IRA or k.
Lumpy, 3,Year-Old Cheese Recovered From Egyptian Tomb - HISTORY
Be explicit ahead of time. What's your base income?
Maybe you have a guaranteed salary. Call that your base. Or if you are fully on commission, look back at the recession and see how much you earned back then.
You may want to bump up your recession income based on changes to your job or compensation structure. What's your nut? That is, how much do you need each month to cover your bills and living expenses? This begins with hard numbers which soon turn soft.
The mortgage or rent, utilities and car payment are all pretty hard numbers. Money for food is softer. In a pinch, a family can cook at home rather than eat out, can enjoy more chicken and less steak, and even drink cheaper wine. Keep that in your budget, but eliminate the rest of the luxuries. On the other hand, a nut greater than base income is dangerous.
Missing Aggregate Dynamics: On the Slow Convergence of Lumpy Adjustment Models
I recommend a strategy to get the nut down. In these good times, pay down your credit card debt; this is the fastest way to reduce your nut. Look at your other debts and consider whether you can pay them off entirely.
Note the difference between full paydown and partial paydown of principal. Paying down a car loan or mortgage does little for your financial flexibility, because your monthly obligation is unchanged. Credit card debt is different, because a lower balance due means a lower minimum monthly payment. I recommend that your priority every month is to pay off credit cards, then to accumulate enough cash to pay off the car loans entirely, and then the mortgage entirely.
Working Papers & Publications
On mortgages, most people benefit from a year mortgage rather than a year, because the interest rate is usually lower. To illustrate the latter, we show that the difference in the speed with which inflation responds to sectoral and aggregate shocks Boivin et al ; Mackoviak et al disappears once we correct for the missing persistence bias. Development of the American Economy. Economic Fluctuations and Growth. International Finance and Macroeconomics.
Lumpy's Lame Card Trick
International Trade and Investment. Productivity, Innovation, and Entrepreneurship.
The Science of Science Funding Initiative. The Women Working Longer Project. Illinois Workplace Wellness Study. The Oregon Health Insurance Experiment.