How to Deal with a Sudden Loss of Income
Experiencing a temporary loss of income can be very stressful. This could be from a sudden job loss, a divorce or from being furloughed because of a government shutdown. Whatever the case, the sudden loss of a paycheck can be devastating.
If you have an emergency fund, it can go a long way toward helping you weather the storm. However, even without the extra savings, there are a few key steps you can take to stay afloat. The moves below will help you stabilize your finances and lessen the impact.
When you face a sudden gap in pay, your first instinct may be to panic. It’s scary to consider the fact that you may have less or no income coming into your bank account. However, it’s important to remember that the loss in income is temporary.
Remind yourself that the best way to fix your situation is to keep a positive attitude. You can turn this around and come out the other side stronger. Your attitude is half the battle so keep that in mind next time you get down about your situation.
Focus on some ways you can relax and reduce your stress. There are many free things you can do to help you get into a better mental space such as taking a walk, watching the sunset, listening to music, cuddling with a pet, having a cup of tea, meditating, and so on.
Review Your Budget and Prioritize
Believe it or not, having a budget will help you feel more in control of your finances during a gap in pay. It will help you see the full picture, including all income sources as well as where all of your money goes each month.
Make sure to account for any irregular expenses that may be coming up since you don’t want any surprises. If you have a significant other, both of you should review the budget together and provide input on your expenses.
Once you’ve done that, you’ll have a better idea as to where your money goes each month. The next step is to prioritize your expenses. There really are only four major expenses you should put at the top of your list: food, shelter, utilities, and transportation. Everything else can wait for the most part.
Make sure you budget your money to be able to pay for the main things that are keeping you and your family alive and well. Remember, this is only temporary so put your current resources toward what makes the most sense financially.
Put Payments on Hold
If you have automatic bill pay scheduled, pause it for the time being. Sometimes, companies will charge you a fee to put auto pay on hold so in those cases, just cancel it. You don’t want automatic withdraws to hit your account and bounce, costing you extra fees. Also, this way you can assess each payment one by one to decide if it’s a priority to pay it.
If you use AutoPayPlus, you can retain all the benefits of our automatic payment service, even during a financial crisis. We will work with you based on your budget and payday to set your priority payments, leaving you with less to worry about.
If you have bills coming up that you can’t cover, call your creditors and explain the situation. You may be able to negotiate a reduced payment plan for the time being. Some companies will also accept a partial payment and will work with you to some extent as you work to pay the balance.
Make sure you keep a spreadsheet of all of the payments you have due, the due dates, and if you have any special arrangements for reduced or paused payment. This way you don’t miss any due dates or payments.
Creditors will be more open to negotiating with you before you miss a payment. Once you have some income coming in, you can go back to your spreadsheet and see which bills need to be paid and when.
Reduce Your Expenses
Now that you have your budget in hand, it’s time to review and cut out everything but the essentials. While expenses such as food are a necessity, extras such as organic foods, convenience items, restaurants, or fast food are not.
Look at each line item and temporarily cut out everything that’s not necessary. This can include entertainment, dining out, travel, clothing, etc. While you should still have fun, focus on finding free activities you can do that won’t put stress on your wallet.
Work on reducing your spending within each of the four essential categories – food, shelter, utilities, and transportation. Here are a few ideas to cut back:
Cook from scratch and shop sales. Review the weekly grocery store circulars and make a meal plan based on the best prices available. Go meatless a few nights a week and focus on recipes using rice, beans, and pasta since they tend to be cheap and filling.
If you are facing a short-term income loss, it wouldn’t make sense to move. However, talk to your landlord or your mortgage company about your situation. They may be willing to work with you on your rent or mortgage payment.
While you can’t go without water or electricity, focus on reducing your usage to lower your monthly bills. Only turn the lights on in the room that you’re currently using, turn the water off when you’re brushing your teeth, and so on. In winter, turn down the thermostat and layer on more clothes. In summer, turn it up and run some fans to cool down.
If you live close to work, consider walking there or biking to save on gas. Alternatively, you can carpool with a co-worker or take public transit. Gas and parking fees can add up quickly so try to avoid using your car as much as possible. If you do use it, combine your errands to save on gas.
Get Income Coming In
With a sudden loss of income, one of the best things you can do for your finances and your morale is to get some money coming in. There are a few quick and easy ways to get some cash rolling in that you can put toward your essential bills.
Here are a few ideas to get you started:
Sell your stuff
Facebook groups, Craigslist, and other online marketplaces are a great way to turn clutter into cash. Holding a garage sale is another great option for getting cash in quickly.
Rent out a room
If you have a room in your house that’s going unused, consider renting it out via Airbnb. People who use Airbnb are usually looking for a short-term vacation rental and are willing to pay more than a traditional renter. The extra money can help you cover your rent or mortgage.
Rent out your car
If your car is sitting in your driveway most days, consider renting it out via an online marketplace such as Turo. This online calculator can help you get a ballpark of how much you can earn for letting someone else use your wheels. Turo also offers up to $1 million in liability insurance coverage to protect you from theft and physical damage. The extra money can cover gas and your car payment.
The Bottom Line
Facing a temporary gap in pay can be scary and demoralizing. Watching your income plummet and your savings dwindle can be stressful. But a sudden loss of income does not define you or your value as a person.
Remember, this too shall pass. Focus on taking one step at a time as you figure out how to navigate your finances during this tough period. Having a supportive network of family and friends who can offer encouragement and a shoulder to lean on can go a long way toward keeping your spirits high.