Are you concerned about your income dropping in this challenging environment? Whether it is already happening or may be in the near future, now is the time to review your spending and resources and make changes. If you continue spending at the same rate, with less income, you may find yourself going deep into debt and/or emptying your savings account.
It helps to remember that, for the most part, the financial changes you may need to make during this time are only temporary. Evaluate your expenses and consider ways to do things differently. For each expense category ask yourself – can I do them less expensively, less often, or can I stop doing them – at least temporarily?
Make a Plan: Determine how you will spend less, find a way to bring in more income, or potentially try to do both. Decide where cuts can be made, control spending, set priorities on expenses, and defer non-essential spending. If your income is still coming in as usual for the time being, maximize your emergency savings. Hold onto any cash and make only minimum payments until you know what your situation will look like.
- Start tracking your spending sooner rather than later – this includes daily out of pocket spending and spending on debit and credit cards. You can track your spending using free phone apps, the notes app on your phone, or paper and pencil. Finalize your expense picture by pulling together your monthly expenses like rent/mortgage, auto expenses, utilities, and other items. Include expenses like insurance, taxes, and fees that don’t happen every month.
- Compare your income and expenses. Make reductions in spending as quickly as possible. Don’t forget to look at monthly automatic withdrawals or charges that you may be able to stop or put on hold if they are not necessities. Consider putting together a list of your assets and liabilities so you have a big picture of what you owe and to whom, but also what you own that is available to you should you need to make tough decisions about finding cash (i.e. bank accounts, equity in a home or car).
- Determine your priorities. You will need to make some hard choices. This may mean that everyone in the household has to give a little – including children. For example: you may need to temporarily reduce or eliminate buying clothes, eating out, hobbies or entertainment. Talk to your family and include them in decisions about lifestyle changes that may be needed. Communication around money is always important, but especially in challenging times.
- Review your resources: Consider how you can spend time rather than money – doing things for yourself that you might have previously paid someone else to do for you. What assistance can family members provide to help you reduce spending (i.e. pitching in to do tasks or services you need)? What non-money resources do you have on hand that can be used to meet household needs? Are there community resources you can access through local institutions such as the United Way, local churches/temples and non-profits.
- Reduce expenses: Ask to lower interest rates on debt, use parks and free entertainment, use the libraries (electronic resources) for books, videos, music, etc., evaluate the need for cable or telephone extras, reduce cell phone plans, reduce what is spent on gifts, eat at home, barter, make it yourself, recycle, find a new use for old items around your house, go longer between haircuts, etc.
- Increase income: Get creative about things you could do to generate more income (legally of course). Is there a skill or hobby you could use to earn income? Do you have a skill you can barter with to get family needs met by spending time instead of money? Do you have old or extra items around the house that you can sell to raise extra money? See University of Illinois Extension website for bartering or income generating ideas.
- Contact Creditors: Reach out to credit card companies, utilities, lenders, and student loan companies before missing a payment. Ask about payment arrangements, deferments, or other options to minimize current obligations without hurting your credit.
- Only consider cashing out retirement accounts or insurance policies as a last resort.
A delay in making difficult decisions may result in greater financial setbacks and a longer timeline required to recover. If you are feeling overwhelmed, consider breaking your efforts down into bite-sized tasks you can accomplish at various points in your day – so you can see forward movement with each small step you take.
For more in-depth information and detail about surviving an income drop as well as worksheets to help with financial decisions, visit University of Illinois Extension’s “Getting Through Tough Times” series.
For more information about community resources, visit the United Way’s resource page.