Life is full of surprises. Some of them are unpleasant. Like finding out your job has suddenly gone from full-time to part-time, with half the pay. If you were living paycheck-to-paycheck, this sudden drop in income could be devastating.
Maybe you get a divorce or break up with your partner. You used to have two paychecks, now you have one. Your salaries were not the best, but they covered all the bases.
You had a great budget going, you were making progress toward your savings and debt reduction goals. But for this, you need two incomes or that full-time salary. How do you survive?
Tips to Help You Handle a Sudden Drop in Income
#1 Don’t panic or become depressed. Life is filled with ups and downs. Look at this as a temporary financial setback and focus on what you can do now. The most important step is to stabilize your finances as quickly as possible, so you don’t hurt your credit score.
#2 Did you set up an emergency savings account? Is there still money in the account? Will it help you cover your upcoming monthly expenses until you are able to increase your income? For how long?
#3 Pull out your budget (the one you did at the beginning of the year). You will need to rewrite it. Adjust your income category. Do you have the same expenses? If not, what are your new expenses? How are things looking? Can you manage? Can you cover your bills, this is the most important thing to know. If you must live on less for a while, fine, but you need to stay on track with your bills.
#4 For now, put aside those long-term goals you were working on like saving for vacations, buying a house or going back to school. When you’re dealing with a sudden drop in income, your budget needs to be pared down to the basics.
- Where can you cut back? Once again, don’t consider this a long-term situation. This may be only temporary, especially if your income level crashed because your job was cut in half. You always have the option of looking for a new full-time job.
- Hopefully, you were already tracking your expenses. Calculate your expenses. Look at your fixed expenses such as housing…can you afford the rent? If not, maybe you should relocate to something more affordable, or look for a roommate.
- How about those out-of-pocket expenses? Can you cut down on those? Groceries, for instance, is one place where we tend to spend more than we need. Now is the time to seriously become more economical. Plan your meals, cut out the binge shopping, and buy only what you know you will consume.
#5 Place your entertainment budget on hold for a while.
#6 Leave your credit card at home and pay for everything with cash. Buy only what you absolutely need.
#7 Let people know what you’re going through. It happens to a lot of people. It may be unpleasant, but you need to have a conversation with your creditors and lenders to let them know of your new circumstances. You might be able to work out some temporary arrangements to pay less on your balances until you get back on your feet.
- If you’re going to have trouble paying the rent, get in touch with your landlord. Try to negotiate a lower rental rate for a few months until you restore your income level.
#8 Turn Off Automatic Payments. If your income is too low to cover your bills, contact your bank asap to turn off the automatic payments. The last thing you need is an overdrawn bank account and overdraft fees.
#9 Increase Your Income. When you experience a sudden drop in income you will need a side hustle! Look for side gigs that you can do after your regular job and on weekends. It’s going to mean less social time for a while but remember, it’s only temporary. Put the money you earn from your side hustle toward the bills you cannot cover.