13 Ways to Prepare for Lower Income

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A reader suggested an article on preparing for income reduction. Not layoff or job loss, but rather a partial loss of expected funds – salary reduction, child support, and the like.

“Where you still have a job, but really need to evaluate the ‘new budget,’” she says.

I’ve written on this subject before, calling it the “financial fire drill.” You figure out how little you can get away with spending – and you do it with an attitude of calm preparation, not fear of deprivation.

This baker’s dozen of tips will get you started.

1. Figure a baseline budget

This is the absolute minimum needed for basic shelter, food, utilities, and mandated payments like child support or student loans. Best-case scenario: simply trimming budgetary fat makes up for the loss of income.

2. Track current spending

If you haven’t got a budget, build one – with pen and paper or with a free online tool like Mint.com or Adaptu.com. Again: Knowing where money’s going can show you places to cut.

3. Pay down consumer debt

Trimming some budgetary fat, as noted above, can give you extra bucks to throw at debt. Two other potential tactics: Try to negotiate a lower interest rate or see if you can get a balance transfer to a lower-rate or zero-interest credit card.

4. Ease off on prepayments

Have you been paying extra on your mortgage or your student loans? Redirect that money into savings; as my MSN Money colleague Liz Weston points out, even a $500 emergency fund can make a huge difference.

Cut some costs

5. Re-think your car

Can yours be a single-car or even a car-free household? If so, sell or garage one vehicle. Don’t cancel your insurance outright, since it can be hard and/or expensive to get back in. If you truly need wheels, then talk to your agent about raising your deductible. While you’re at it, look for a better insurance rate.

6. Inventory your stuff

Is any of it saleable? Somebody paid $1,200 for my little plastic statue of Bob Feller.

7. Cruise frugality sites

May I suggest the following: Money Talks News (of course!), MSN Money’s Frugal Nation and Smart Spending blogs, The Dollar Stretcher, Wise Bread, Daily Worth, and I Pick Up Pennies. I’d also suggest you incorporate frugal hacks gradually, so that you don’t get overwhelmed and burn out.

8. Seek utility discounts

Some have reduced rates for people in reduced circumstances.

And just in case…

9. Got kids in school?

Talk to the financial aid office; a change in circumstances might mean your scholar is eligible for additional help. (Avoid more loans, though.)

10. Still paying your own student loans?

Learn about forbearance now, before you need it.

11. Know what’s out there

Go to GovBenefits.gov to learn about the Supplemental Nutrition Assistance Program and any other programs you might be eligible for; check local resources like food banks and public health clinics too. As with forbearance, find out these programs before you need them.

12. Seek a side hustle

Even a few extra dollars could be a huge help. See “Microjobs: Quick extra cash” for specifics.

13. Think about boarders

Maybe a friend or relative (or a grad student) needs a room. Or check out home-stay programs like Airbnb.com and Roomorama; one couple I interviewed pays most of the mortgage this way.

Does all this sound drastic? Remember, you don’t have to do all of it – and you might find more suitable ways to cut costs.

Attitude is as important as any frugal hack. This is not about deprivation, but rather about smart use of available funds. If your income is reduced your outgo had better shrink too.

Continuing to live the way you always had would be financial suicide. Those credit card bills will keep coming in whether or not your ship eventually does.

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