Sandra Fry: There are steps you can take to make dealing with a reduction in income a bit easier
If your income cut was a shock, don’t spend money on anything that isn’t absolutely necessary until you know where you stand. Photo by Getty Images/iStockphoto One of the hardest situations to face in life is when your income is jeopardized. From providing your family with a place to call home, to filling your fridge and affording your lifestyle, money really does make the world go ’round. But there are steps you can take to make dealing with a reduction in income a bit easier.
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Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors Start by spending based on your new, lower level of income. If you know your paycheque will get smaller soon, adjust your spending as soon as you know so that you’re prepared when the inevitable hits. If your income cut was a shock, such as a sudden layoff, don’t spend money on anything that isn’t absolutely necessary until you know where you stand. Everyone’s idea about what’s necessary is different, but if in doubt, it’s probably an expense that can wait.
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To figure out where you stand, outline your essential living expenses. This will be your rent/mortgage, strata fees if you have them, food and medical costs. Check in with your lender to see if you can reduce your mortgage payments or if it has a hardship program to help you get by until you’re back on your feet. For food, budget about $300 per person a month in your household to start with. You can work on saving money on your grocery shopping, but start by making sure you have that expense covered.
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Next, outline your other bills and necessary costs, such as household utilities and transportation. Downgrade, cancel or put on hold any services you can do without for the time being. Cancel anything that automatically renews so that you’re not caught off guard. Focus on what you truly need, not what you want. If you can get through this time with as little debt as possible, you’ll get on your feet again that much faster when you resume your former level of income.
One good way to keep yourself financially accountable is to only pay with cash, debit card or an app linked to your bank account. This is not the time to use credit cards because you don’t know when you’ll be able to pay back what you borrow.
Your credit rating will be affected when you start missing payments, but it will recover once you’re able to resume making them again. Focus on taking care of yourself and your family, and looking for alternate sources of income, rather than your credit rating. You should, however, explain your current situation to your creditors. They are better able to assist you before you fall behind on your payments.
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Once you’ve outlined your expenses, consider what costs you can further cut for an emergency budget. If you really don’t have enough money to get by, look for ways to generate a lump sum of money. Sell a second car or recreational vehicle. Look at any jewelry, electronics, collectibles, household goods or other assets and determine if there’s anything you can do without. A quick cash injection might just get you through the short term. But be sure to keep that money safe from inadvertent spending, and, more importantly, being offset against your debts.
If you have credit cards or any kind of loan at the same financial institution where you have your bank accounts, any money in your accounts can be applied against those debts if you’ve fallen behind on your payments. To keep any money you have safe, open an account at a bank or credit union where you don’t owe any money. Deposit all future income at this new bank, so that you remain in control of your money.
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You might also want to consider some longer-term ways to supplement your income. Take in a border, rent space in your home or garage, do part-time work or start a side hustle. There could be some costs and considerations attached with these options, so calculate your risks and what you could earn before getting started. You don’t want to jeopardize your main job, especially if it’s one you plan to go back to.
Recommended from Editorial 5 steps to stop feuding financially with your partner The pros and cons of a reverse mortgage to help pay off your debts Top 6 ways to improve your finances this year Depending on who else lives in your home, a family meeting might be needed. Explain what’s going on in age-appropriate ways to your children before they feel your stress and start feeling uneasy. Reassure them that their needs will be met, but there might be little left over for extras. Older teens and young adults can do their share to help around the house or contribute to their own expenses. Everyone’s co-operation and participation will be needed to get through this difficult time.
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Article content If you’re feeling totally overwhelmed and don’t know what to do, contact a non-profit credit counsellor in your area. They’ll give you information and guidance to ease your stress and connect you with community assistance programs if you need that kind of help. It can be hard to ask for help when you’re struggling to make ends meet, but you can always repay the favour once you’re back on your feet.
Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 26 years.
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