When your income drops dramatically, it's easy to panic. If you take a low-paying job or lose a major client, you may feel like the world has ended and have no idea what to do next.
Thankfully, experts say there are plenty of steps you can take to maintain financial stability.
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GOBankingRates spoke with Taylor Kovar, certified financial planner and founder and CEO of 11 Financial, and Scott Lieberman, financial expert and founder of Touchdown Money, to discuss the money moves you can start making today to ensure a smooth transition. Read on for their insights.
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Let's start by looking at your financial situation.
“If you experience a significant drop in revenue, it's important to reassess and reassess your financial situation,” Kovar said.
“This assessment begins with developing an overview of your income sources, including severance pay, unemployment benefits, or other compensation you may receive.”
Next, he said to list all of your expenses into categories of fixed expenses, which are mostly constant, like rent or mortgage payments, and variable expenses, which tend to change in amount from month to month, like groceries, utilities, and discretionary spending.
“Write down all of your debts and other financial obligations, including credit card balances, loan payments, and unpaid bills,” he said. “Having a clear picture of your new income, expenses, and financial obligations can help you clarify your financial situation and identify areas that need attention or change.”
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Create a budget
Kovar said once you have a clear picture of your financial situation, the next step is to create an amended budget to accommodate the loss of income.
“First, prioritize essential expenses like housing, utilities, groceries and health care to ensure these basic needs are met first,” he said. “Take a closer look at discretionary spending categories like dining out, entertainment and non-essential purchases to identify areas where you can reduce or eliminate spending.”
Lieberman agrees: “If you lose your job or take a lower-paying job, there are plenty of options to make the numbers work.”
“Subtract your new income and see where you can afford it and where you need to cut back,” he explained. “You might find some things you can cut, like a TV subscription you're not using or expenses you don't really need.”
Kovar says you should always look for opportunities to save money by hunting for bargains, using coupons and looking for cost-cutting measures like meal planning and energy conservation. “Reallocating resources and optimizing your budget can help you adapt to changes in your income and maintain financial stability.”
Pay your bills on time
“Make sure you keep up with your bill payments, and if you can't make them, call your creditors and ask if they'll work with you,” Lieberman says. “Ask for assistance and it can give you some breathing room until you get back on track. Losing income can be tough, but with the right plan, it won't be too bad.”
Explore alternative sources of income
If your income is significantly reduced, you may need to find other sources of income to supplement it, Kober said.
“Look for opportunities to leverage your skills, expertise, and hobbies to generate additional income streams,” he suggested. “Consider freelance work, consulting projects, and part-time jobs to augment your income.”
Additionally, he said people should consider monetizing assets and resources they already have, such as renting out a spare room or selling items they no longer need. “Expanding your income streams and looking for creative ways to make money can help mitigate the impact of reduced income and improve your overall financial stability.”
Stay on top of your insurance coverage
“During times of financial uncertainty, it's important to review your insurance coverage to ensure you and your family are adequately protected,” Kovar says. “Evaluate your health insurance policies and understand your coverage options and associated costs, including premiums, deductibles and copayments.”
“Consider whether you need to adjust your coverage as your financial situation and health care needs change,” he said.
Similarly, he said people should review their life and disability insurance policies to see if they provide adequate coverage for their current situation. “Speak to your insurance advisor or financial planner to consider making adjustments to your policies that can help reduce your financial risk and give you peace of mind during these difficult times.”
Explore government assistance programs and grants
“In situations where you've experienced a significant loss of income, it's important to look into government assistance programs and benefits that can provide temporary relief and support,” Kober says. “Look into the unemployment benefits offered in your state or jurisdiction to see if you qualify for financial assistance.”
Additionally, he recommended looking into other forms of government assistance, such as housing assistance, food stamps and medical subsidies, that can help cover essential expenses during economically difficult times.
“Until your economic situation improves, be sure to actively explore your options and access available resources to fill in the gaps,” he said. “Remember, government assistance programs are designed to help individuals facing financial hardship and can provide valuable assistance in your time of need.”
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This article originally appeared on GOBankingRates.com: I'm a Financial Expert: 6 Money Moves to Make If Your Income Drops Significantly
