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How to survive when your income drops drastically

Sometimes bad stuff happens to good workers. A few belt-tightening tactics will help you hang on until better times return.

By MSN Money Partner Apr 7, 2014 12:28PM

This post comes from Donna Freedman at partner site Money Talks News.


Money Talks News on MSN MoneySuppose 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 (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.


Image of arrow © Datacraft Co Ltd, imagenavi, Getty ImagesThose 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.


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.


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.


Another free resource: Sites like our partner PowerWallet are free services that track your spending and look 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.


More on Money Talks News:

104Comments
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The planning should come long before you lose your income. Live within your means and quit trying to keep up with the Jones. If you are already stretched to the limit cut back so you aren't in disaster mode.
Apr 7, 2014 2:44PM
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#1 - Don't live beyond your means.

#2 -  Two incomes? Live on one.

#3 - When getting a raise don't go spending.

#4 -  Common sense; save for a "rainy day."

There's more, too tired to tell my secrets to the Yuppies!!

Apr 7, 2014 2:35PM
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We take so many of our comforts for granted, we perhaps forget how much we're paying for them...

Lose the smart phone, go w/ a pre-paid... turn off the central A/C, and put a window unit in the bedroom... get rid of the SUV and go with a smaller, fuel-efficient car... shut the cable off and watch broadcast TV... read books instead of going to the movies... choose groceries that don't require much cooking (fresh veggies, microwave foods), install a hot water heater timer, and learn how to fix things yourself, instead of hiring a repair person.

Apr 7, 2014 2:17PM
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" ' How to survive when your income drops drastically' " ? Start thinking about not voting for Democrats again.

I mean how many times, how many years, how many administrations do democrat voters need in order to understand that economic situations aren't going to improve by voting for the same mindset over & over & over & over.........and over, and over. 

Apr 7, 2014 2:47PM
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Step 0 - Don't try to live on less than the full two incomes. Live on one income. If you're living a lifestyle that requires two incomes then you're setting yourself up for a fall. Cut expenses before you have to do it and recognize "need" vs "want". If you require both incomes to live your lifestyle any unexpected expense is going to start you down the slippery slope of debt.

If its too late, be ready to accept that your standard of living may have taken a long term hit and to adjust your life accordingly. Do not burn through your 401K trying to keep a house that you can no longer afford. You lived on less before and you can do it again. Not fun, not ideal but survival rarely is.  Here are some tips -

1) drop the smart phone and get a "dumb" one. Save about $50 per month. Get a low-priced tablet (e.g., Kindle Fire) or use your old iPhone as a wi-fi only device. Wi-fi is available everywhere; you really don't need to pay for cell-based data plans
2) call your car and home insurance company and tell them you want to go through all your coverage because you found another carrier that is cheaper. They'll probably help you "find" 10% off or more.
3) speaking of car insurance - An expensive policy from GEICO, Progressive, etc. is not needed. You can find one usually for less than $25/month from a place like Insurance Panda. If you spend too much on car insurance from one of those big companies, chances are you are simply funding their expensive TV ads with cute animals.
4) compare what your house is really worth to your assessment. Many assessments have never been properly adjusted down to reflect the market over the last 4 years. We cut our property taxes by about 20%.
5) re-fi your 30-year mortgage to a 15. The interest rate will drop by at least 50-75 bps, more depending on your current rate. The payment may go up slightly, but it is because you are paying off your loan faster. If it's possible, get the mortgage paid off before the kids go to college. At a minimum, have it paid off before you retire.
6) review your credit card bills for all the things you are paying $10-20 per month for that you no longer need. I bet everybody has at least a couple
7) drop all magazine (paper and on-line) subscriptions. Sorry WSJ, but that includes you too. If you look around, you can find comparable content for free.
8) review your investment portfolio for ways to replace higher fee mutual funds or ETFs with lower fee ones. S&P500 funds/ETFs shouldn't charge more than 0.10% in fees. Fees may be higher for specialty funds, but they are all coming down fast. If your company 401K uses high-fee funds, talk to the folks in charge. A difference of 25 bps in fees will mean a difference of about 5% in your portfolio value after 25 or 30 years.
9) and of course the most impactful -- never carry a balance on a credit card. If you can't resist, cut up the cards.

Apr 7, 2014 4:03PM
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Americans today need to be learning how to live on much less money in the future no matter who you are, what you are and how much you make. Otherwise, you better grab a life jacket as you go down with the sinking ship. If you can find one available.
Apr 7, 2014 2:27PM
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To eliminate the wild swings in the utility bills, sign up for budget billing (if your utility offers it).  Having a set utility bill every month helps when doing a budget.
Apr 7, 2014 3:47PM
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Call Obama, he has a pen and a phone and can make anything happen!
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Queue Casey  

 

In 10

 

He is going to tell us how 70 million people are living in poverty and how McDonalds and Wal Mart should pay a living wage and also how College should be free so people can have a fair chance.

Apr 7, 2014 3:33PM
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you won't be able to avoid property tax so review all actions and statements by incumbents and try to vote for the candidate  who's lies tend toward cutting property taxes...
Apr 7, 2014 3:20PM
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remember........the main goal of capitalism is to keep you working as many jobs as possible until you die.....that's why you hear the capitalists bitching about entitlements like pensions and social security
Apr 7, 2014 8:58PM
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The $hit isn't done hitting the fan yet.  The best thing you can do for yourself is STAY OUT OF DEBT.  Have a back up plan in case your income goes to ZERO. 
Apr 7, 2014 2:48PM
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Depending on your situation, you might have to give up the expensive latte's, forgo the new top hat, downgrade to a not as smart, smart phone, return the monocle , and trade the fixie in on a bike with more gears depending on your location, and how far it is to the library, think free books, and possibly Wi-Fi. 
Apr 7, 2014 11:55PM
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Although I agree with your advice, you make the assumption that a sudden income loss is a result of either losing a job or having hours cut back.  Sudden income loss can also happen because of the death of a spouse while still young.  There's not only loss of immediate income, but also the loss of his/her 401(k) contributions, pension benefits, Social Security contributions.  Prepare for sudden income loss by buying enough life insurance for the needs of those you leave behind. 
Apr 7, 2014 4:31PM
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So what do we do with the cheaters and whiners that spend it all and wait for help?
Apr 7, 2014 10:58PM
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     GET THE TAXES CUT DOWN TO HALF AND GET RID OF CONGRESS.
Apr 8, 2014 8:42AM
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Spend less and retire. I'd rather have a little less than to give it all to the free loaders taking from me.
Apr 7, 2014 4:56PM
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Always keep an updated resume no matter how great things may seem. Be willing to relocate for a good deal or go down with the ship on no deal. Move like a snake through the corporate empire. First this way then that to please corporate leaders individually. When your income drops drastically get out there and put your services on the table with a smile. Can Do.
Apr 7, 2014 4:31PM
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See Michael Douglas in "Falling Down", 1991, as he sets out to cross L.A. in his crewcut, a SS white shirt and tie and a briefcase.  Talk about waiting until the good times return.  He encounters some strange folks. 
Apr 7, 2014 5:38PM
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Food, clothing & shelter. It doesn't take me much to get by. I find it rather easy faced with NWO slavery as the alternative. They can fund themselves.....
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