There is nothing quite as straining on a person's finances as a significant decrease in income. Whether it be due to a job layoff, a need for medical leave or some other circumstance, those substantial cuts in income can be tough on one's finances. Here are some tips to help you survive and even thrive when you've had a significant income decrease.
1. Tighten up your budget
When things are going well, it can be easy to fall into the habit of not paying much attention to your monthly expenses. However, if your income decreases drastically, it becomes quickly apparent that expenses need to be looked at closely. If you have a budget, go over each line item and ask yourself, "How can I make this number smaller?" If you don't have a budget, make one, and then review each line item. You will be amazed at how much money you will save each month by doing this one exercise.
2. Sell stuff you don't need
Over the years, closets begin to pile up and spaces under beds get filled with items you no longer need or use. Many of these items might be worth something, and now is the time to start making some quick cash with those unused treasures. Go through each cabinet, closet and drawer and figure out what you can part with. I like to use the "one year" rule when going through this process: If I haven't used the item in the past year, then chances are I don't really need it. Once you have determined what you can sell, figure out which avenue is best to sell each item. For instance, if you have a large item like a couch, then a local sales site such as Craigslist will probably be your best marketplace. However, if you have something unique like a Coach purse, then eBay will likely be a better option.
3. Start batch cooking
This is a great way to slash your expenses and eat healthier in the process. Consider cooking the bulk of your meals on a certain day of the week. For instance, you can create a huge pot of chili on a Sunday that will last for four to five meals throughout the week. This method of menu planning will not only save you a lot of time, it has the potential to reduce your grocery spending dramatically.
4. Look for ways to increase your income
Just because you've lost a large portion of your income doesn't mean it has to stay that way. There are a multitude of options for you to get your income back to where it used to be. If you were laid off and took a lower paying job to just "get by," then continue your job search while you are working your full-time job. Submit at least one resume a day, go on interviews at lunch or after work; do whatever it takes to get back to where you want to be.
Another idea is to think about part-time options for bringing more income in. This can be a lucrative option if you need money fast and are willing to work hard to make it happen. Consider starting an Etsy store where you can sell arts and crafts. Or if you have a skill set like programming, consider signing up for services like Elance or oDesk where you can find freelance work.
5. Cancel unused memberships
How often do you go to the gym? Do you go to Costco enough to justify the annual fee? If you are paying for services that you don't use very often, then perhaps it is time to cut those services off so you can get your budget where you need it to be.
6. Emergency fund
It is important to have an emergency fund, especially when your income decreases. Why, you might ask. Because it will help you avoid going into debt to fund your lifestyle when your income takes a hit. If you don't have one already, I would encourage you to figure out how to come up with $1,000 for a starter emergency fund. If you get a flat tire or have a pipe burst in your home, the emergency fund is there to take care of those expenses. Quick note: If you do end up using some or all of your emergency fund in case of an emergency, then your first financial priority should be to refill it.
7. Reduce your energy usage
Many electric companies have what is called "off-peak" hours. If you run your major appliances during this time, you will pay a fraction of what the "on-peak" cost would be. Ina addition to this, consider using a programmable thermostat for your home. Once installed, you just tell it what temperature you want it to be morning, afternoon and at night. Some of them even let you control the temperature for each day of the week. Programmable thermostats are great because they allow you to set the system so that it doesn't run unnecessarily, saving you money on energy bills in the process.
8. Re-evaluate your pay TV options
When your income is limited, there are many other alternatives to cable or digital television services that can save you money. You could consider getting a Netflix subscription for only $8.99 a month where you can stream unlimited movies and TV shows. They do not have every TV show and movie known to mankind; however, it is a way to replace your cable bill and save you some serious coin.
9. Cancel newspaper and magazine subscriptions
The internet is a beautiful resource. It allows you to read the news and even some magazines at no cost. If you have an easy way to access the internet like an iPad, cell phone or laptop computer, then consider canceling your newspaper and/or magazine subscriptions and stop paying these unnecessary expenses.
10. Reduce or eliminate your cell phone bill
I understand the importance of having a cell phone; however, it can be a hefty cost when you don't have much in the way of cash. Shop around and see if you can find a better deal. There are companies like Republic Wireless who offer unlimited data and text for $25 per month. Granted, it is a 3G connection, but it is a bargain for what you get.
When your income is slashed, you need to take drastic measures to ensure that you can pay all of your bills. If you find yourself in this situation, take action immediately and do everything you can to reduce your expenses so that you will be able to weather the storm.