An unexpected decrease in income is never a welcome surprise. While, understandably, your instinct may be to panic, taking proactive steps to identify and address budgetary challenges can help you feel empowered to manage your finances during this challenging time.
While you may not be able to focus on planning for the long term at this time, you can still follow the first step of a personal finance audit – reviewing your records and spending habits.
If you're someone who follows a budget closely and you already monitor your finances, this audit can be as simple as looking back at the spreadsheets or apps you've used to track your spending. If you're not one to keep a budget, your audit may require a bit more work – making a list of expenses, pulling up your bills from the past year, and really digging in to see where your money typically goes.
Taking a deep dive into your finances can help you understand your necessary versus discretionary spending, identify areas you can lower your expenses, and create a plan for where you may need assistance.
If you’re considering applying for a loan or credit card to help make ends meet, be sure to check your credit before you begin applying. Knowing what shape your credit is in will give you a better idea of how likely you are to be approved for a loan and what your interest rate will be.
You can check your credit report for free at AnnualCreditReport.com.
When you're facing a reduction in income, you'll likely need to balance that out with a reduction in spending. This doesn't have to mean eliminating everything that brings you joy, but rather, taking a holistic look at your expenses and seeing where you can make cuts.
Outside of the typical advice to slash your favorite coffee order or pack your lunch rather than buying it out, look at where larger amounts of your money go each month.
The changes you need to make will depend on your individual circumstances, but you can get creative at how you can reduce your monthly expenses to make them more manageable.
If you simply don't have enough cash to pay your bills, ask for help before the due date passes. Many companies offer programs or payment plans to help individuals who have fallen on hard times. For example:
In addition to your monthly bills, research ways to meet your basic needs, as well, such as:
Once you've determined what expenses you can reduce and what income or assistance you'll have available, take time to create a budget that works for your current situation. If you need help getting started, check out our free budgeting worksheet.
For more tips on ways to save and manage money throughout all of life's stages, visit our blog.