How to Adjust Your Budget When Your Income Drops Off

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.

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.

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 (such as auto loans, minimums due on credit cards).

Compare this with your household’s current income. In the 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 versus 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 the Internet for job sites, online resumes and email contact with potential employers. Internet service 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 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.

Eating & 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. But it usually is possible to trim these expenses – and sometimes you can get free advice and/or materials. Contact your local utility providers.

Transportation is another place to cut. 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.

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.

This post originally appeared on Money Talks News.

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