How to Survive When Your Income Drastically Drops

Suppose the first thing your boss says tomorrow is, “Sorry, but I’m cutting you back to 28 hours a week.” How long before you couldn’t pay your bills?

Sometimes bad stuff happens to good workers. No one wants to think about a major income drop, but getting ready now means that you won’t be quite as blindsided later on.

Money Talks News founder Stacy Johnson has advice for dealing with a sudden and serious drop in income. After you’ve watched his video, read on for more tips.

Sure, some cutbacks seem to come out of nowhere — but many don’t. Savvy workers pay attention to what’s going on in their industries, or even in their departments. Are orders down? Have other divisions undergone hour cuts or layoffs?

Should you notice any disturbing trends, start right now to scale expenses back. Way back.

“If you’re a two-income family, see if you can live on one or one and a half incomes,” advises Gail Cunningham of the National Foundation for Credit Counseling.

Any money you don’t use should go straight into your emergency fund. (For tips on augmenting an EF, see “9 Ways to Build an Emergency Fund When Money’s Tight.”)

But what if your cutback comes from out of the blue? Whether preparing for or reacting to wage cuts, start with a serious look at your finances.

Find the bottom line

Create a baseline budget, i.e., the absolute minimum required for food, shelter, utilities and debt service (auto loan, minimums due on credit cards).

Compare this with your household’s current income. Best-case scenario: Even with a cutback you’ll have more than enough to cover actual minimum needs. That makes cutting expenses a little easier because you won’t have to trim quite as much.

What to cut?

Be realistic (and critical!) about all expenses, however.

“Food is a necessity – but food outside the house vs. inside the house is a lifestyle choice,” says certified financial planner Larry Rosenthal. In recent years his company, Rosenthal Wealth Management Group, has helped a number of federal worker clients deal with furloughs.

Those who see themselves looking for work tend to want to keep Internet for job sites, online resumes and email contact with potential employers. Internet is frequently bundled with cable television costs, and sometimes TV is a family’s main source of entertainment. But cheaper options exist for both. See “How to Slash Your Monthly Expenses By $1,000 (or More) per Year” for details.

More and more people are ditching their landlines in favor of a cell-only lifestyle. It’s possible to cut your costs in half or even to eliminate them entirely. Learn how by reading “How to Get Free Cellphone Service.”

Eating and cooling

The budgetary line item with the most wiggle room? Food. The usual suggestions apply, including:

  • Carry a lunch. You’ll save a ton vs. even the cheapest restaurants.
  • Cook at home. You don’t need to eat out. You want to eat out — and it’s a big drain on your finances. Can’t cook? Learn! The Internet has endless resources for beginners.
  • Entertain at home. Meeting friends for lunch or dinner, or even for coffee, is so common that we forget how much it can cost. Stage a potluck. Invite your BFFs for iced tea and cookies (search the Internet for recipes for inexpensive sweets). Host a movie night and serve flavored popcorn. The Popcorn Board has amazing recipes, including Bombay Popcorn, Chipotle Ranch Snack Mix and Sweet Garam Masala Kettle Corn.

Utility costs can be a real budget killer, especially during hotter-than-usual summers or during harsh winters like the one much of the country just endured. But it usually is possible to trim these expenses – and sometimes you can get free advice and/or materials. Contact your local utility providers and also see “15 Low- and No-Cost Ways to Reduce Your Winter Energy Bill” and “How to Get Your AC Summer-Ready.”

Another place to cut: transportation. Having grown up in a rural area, I know that the car-free life isn’t always possible. But you can reduce gasoline costs by carpooling, riding a bike, using public transportation (if applicable) and combining errands. Or propose “carpool shopping” – you and a friend or two hit the supermarket together and split the gas.

Help from a pro

Suppose you’re so demoralized by the salary setback that you’re having trouble coping, let alone instituting change. Get advice from your local nonprofit credit counseling agency, which offers help on a sliding-scale basis. (Hint: It might be free.)

Counselors can help you develop a workable budget, and maybe negotiate with existing creditors on your behalf. Be very choosy about which agency you pick, however. For more information, see “Resolutions 2014: 8 Tips to Find Help With Your Debt.”

Another free resource: our partner PowerWallet, a free service that tracks your spending and looks for better deals. Having a handle on your funds helps you stay focused on the big picture.

The bottom line: Stuff happens, and you need to be ready. The trick is to have a plan in place, so that you’re not reacting out of panic. Get a grip on your finances and you’ll be better equipped to ride out the storm.

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Comments & discussion

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  • Sherrie Ludwig

    Sheesh, this is Home Economics 101.
    Food: eggs, beans, rice and the cheaper vegetables. Beans (not canned, the dry ones) in a slow cooker all day equals tummy ballast in the evening. Keep a price book (borrow a copy of the Tightwad Gazette from the library) and get surprised at how the different stores price things. By me, Wally world is the MOST expensive for fresh vegetables, Sam’s is next, and a tiny little grocery store is the cheapest overall, sometimes by 60%! Make a list and stick to it, shopping only once a week or less. Don’t buy processed food! If it comes complete in a box, you can make it cheaper at home. Rice-a-roni is so cheap to make, and comes together in the same amount of time. Bake your own bread – 20 to 40 cents a loaf! Make yeast bread when you will be home in the evening chilling out, it only takes a few minutes stretched out over a couple of hours. This two person household eats very well and heartily on under $300. a month.
    Stop using credit cards! NOW! when you are in a hole, quit digging. Pay off what you can, renegotiate interest rates if you can, and get rid of the debt (borrow the book Financial Peace from the library, or any number of Suze Orman titles)

    • Nick in Mass

      You’d be surprised by the number of people who are clueless to this type of thinking and lifestyle. They want convenience, they want it now and and don’t want to be “bothered” doing the little things that will really make a better life and save a buck without much, if any, sacrifice. Those bucks add up quickly and can be used to pay off bills or put gas in your car. Think about it people !

  • http://www.moneytalksnews.com/ Stacy Johnson

    We don’t typically offer transcripts. What is it you’re looking for?

  • Jcatz4

    You say that before you had a smart phone (now that’s an expense I’m sure you could learn to live without) that you “used” the Sunday paper – you say you didn’t buy it but skimmed through it. I’m curious, how did you do that? Did you stand there in the store and look through all the pages of the newspaper? If that is what you did, then that Sunday paper really became “USED”. Not a very nice thing to do.

    • Jason

      Smartphones don’t have to be expensive. They are only expensive if you buy into a contract that locks you into paying way to much every month to get the phone at a discount.

      My wife and I pay $25 per month for service on two smartphones and one mobile hotspot. Our phones were purchased outright with no contract. My wife has an iPhone 5 I purchased on EBay for less than half price when the new iPhone 5S came out and the previous own just had to have the newest gadget. My phone is a Lumia 925 that I bought new for 1/2 MSRP when it’s replacement was announced and Nokia needed to clear out old stock.

      • Jcatz4

        Glad you are happy with your smartphones and cost per month. Is the $25. per month for both phones or just one? Anyway, I don’t need a lot of bells and whistles – that’s why I’m content with my TracFone. The phone cost me $20. (in 2009) and I buy a yearly card ($100). The cost is a little less than $9. (w/tax) a month. I get 800 minutes because my TracFone is a double minutes for life phone. Plus I can usually find a code for 200 bonus minutes. That’s a little over 83 minutes a month and that is plenty for me. I buy the yearly card and that way I know I’ll have my phone service for a year. I am a retired Sr. and I just like having a phone in my handbag just in case I need it.
        My first comment was really directed to Sarah because she apparently used to go through newspapers in the store without buying them. I don’t think that is very nice. I might look inside a paper to see if all of the sections I’m am expecting to get are all there, but I wouldn’t look through all of the pages to see what was on sale. There has been a few times when I have purchased a newspaper and gotten it home that I have thought “this paper looks like somebody has already read it.”

        • Jason

          I have my father-in-law on that same TracFone plan and it works well for him. There are cheaper plans out there for limited usage though. I have my father on Page Plus Cellular’s $80 for 2000 minute plan. The minutes are good for a year just like your Tracfone plan. Page Plus uses Verizon’s network.

          The $25 is for 2 smartphones and 1 hotspot. Both of the smartphones are on the AirVoice Wireless $10 monthly plan. AirVoice uses ATT’s network and they charge $0.04 per minute, $0.02 per text, and $0.06 per MB of data on the $10 plan. That is more than enough for us since we have WiFi at home and my wife has access to WiFi at work. I use a FreedomPop hotspot for data at work and that costs $3.99 per month for 500 MB and then $0.02 per MB for any extra usage . The final piece of the
          puzzle is a T-Mobile SIM that I keep active for $10 per year. I don’t use it much but it costs me less than $1 per month and I could unlock 2 phones per year using the account. T-Mobile changed their unlock policy in March so I don’t know if I will keep that SIM active when the current balance expires
          in May.

          • Jcatz4

            Jason – I don’t lose my minutes if I don’t use them in a yr. I presently have 4231.60 mins. left and I don’t need to buy another card until 10/2014 to keep my service – unless I get REAL chatty and run out of minutes – and that is not likely to happen. I text my brother and I can send 3 messages and it only knocks off a minute. I purchased my last 3 yrly. cards through Ebay. In 2011, I paid 87.99 and the next wk. the same Ebay seller had one for 77.77 so I bought it. So I didn’t have to buy another one until this past Oct. and I checked again on Ebay and the same seller had one for 84.99. No shipping and handling or tax was charged. If I had purchased the cards at a store here in NJ, each one would have cost me 106.99 (includes the NJ tax of 7%). Plus since I charge the purchases to a cashback credit card, I get a little more back. I always pay off any credit cards each and every month so I have NEVER paid any interest on credit cards. Actually, the credit card companies are paying me to use them.

          • Jason

            Sounds like you found a plan that works for you. Page Plus would give you double the minutes for the same price but if you have 4200 minutes banked up it doesn’t sound like you need any more minutes. Minutes on Page Plus don’t expire as long as you add an additional card by the end of the service date.

    • Sarah

      Wow, judgmental are we? You can get a plan for $35 a month which is what I paid before. Try finding a regular “dumb phone”. I used a neighbor’s old paper and asked before hand. He benefited from this as well because he was retired and looking to save money. What’s wrong with anything being “used” anyway? I can’t afford a land line and if I’m working two jobs how can I find another job if I keep missing calls? Do you have any idea what it’s like to live on a tight budget AND pay back student loans? From your nasty attack I’d say you nave no clue.

      Would you prefer I stop working my butt off, get pregnant and have a couple of different welfare brats from different boyfriends? Maybe I should then you’ll have something to actually whine about. Excuse me for breathing you jerk!

      • Jcatz4

        Whoops! Looks like somebody got out of the bed on the wrong side. Remember to try to keep your remarks “civil”. I have a land line basically because I need it for my internet which is dial-up service. I can’t afford any other service. I also have a TracFone because I like to have it with me when I am out in my car just incase I need it – but NOT while I am driving. I don’t use either of my phones for “yacky yack”. The TracFone cost me $20 and it’s a double minutes phone. I buy a yrly card so that my service continues and that gives me 800 mins. plus I always get a code for an extra 200 mins. – total of 1000 mins. Unused minutes do not expire, therefore, I presently have 4231 mins.
        I’m happy to know that you did not stand in a store and go through a paper that someone else would then buy. Too bad you didn’t state that in your first comments. My man friend buys me a paper every Sunday and many times things are missing from it – particularly the coupon inserts – and the paper looks like someone has already read it. I can usually tell when the coupons are missing and that they should have been in the paper because on the front page it tells you how many dollars worth of coupons are supposed to be inside. I’m pleased that Bill buys the paper for me but sometimes he’s not getting everything he paid for because someone has “pilfered” it.
        You think I don’t know what it is like to live on a tight budget?? I’ve lived on a tight budget for about 50 yrs. and I’m 70 now. I didn’t have any student loans to pay back because after graduating high school I went right out into the working world. I presently live on SS and a very small pension for a total of abt. $13,000 a yr. I have a small home (that is paid for) but I still have the property tax, elec., gas, water, phone, home owner’s ins. and car ins. to pay for. My car is paid off. Oh, yes, I also buy food and other necessities. I almost forgot to mention that I do not have Cable TV – I get my TV stations by using an indoor antenna. That doesn’t always give me the best reception but I’m not paying the high price of cable So I think I very, very much know what it is like to live on a tight budget.
        On a final note – I will excuse you because you are apparently young and still learning.