Budgeting in a Crisis: What to do when your Income Suddenly Drops

As countries continue to increase the restrictions of our normal everyday lives due to COVID-19, it’s easy to get overwhelmed with the financial burden that is being placed on Americans right now. In some industries, such as hospitality, working hours are being cut significantly.  Other industries are seeing zero working hours and some folks are limited on their work hours because children are home from school. If you are among the many who are experiencing a sudden change in income, there are actions you can take today to help stabilize your finances. Reevaluate your budget today and see if there are any expenses you can cut that will have an immediate impact on your budget.  Here are some common items to consider:

Subscriptions or Memberships

There are many types of recurring expenses that we may be accustomed to but are not needs. When finances are stressed, these are easy things to pause or cancel to keep some cash for the true necessities. Think about the following list and if you identify any you have, consider calling the company to see what your options are to temporarily stop the monthly charges:

• Gym memberships,
• Magazine subscriptions,
• Household item subscriptions, or
• Hobby related memberships.

Entertainment

No one wantsto cut Netflix out of the budget, especially when you are stuck at home for a few weeks.  However, your priority needs to be housing and food right now.  If you are not able to meet those commitments, then you need to make some sacrifices in this category.  Some services like Hulu will allow you to place a hold on your membership which will relieve you of the financial burden until your income returns to its regular level. Call your cable company or satellite/streaming music service and see if they offer any hold or reduced service to get you through this time.  There are also low-cost internet service specials available which can be as low as $10 per month.

Debt

You might be surprised to see debt listed as an expense to cut during hard times but this could be an area where you can limit what you spend until the COVID-19 crisis is over.  First, make sure that you are only paying your minimums.  If you were working towards paying off debt and were throwing a lot of money at your balances, now is the time to take a break.  You can kick start the intensity again when this turbulent time is over.  If even making the minimum payments is not possible, contact your creditors and ask what options are available.  In the wake of the coronavirus, many creditors have established or increased their forbearance and temporary relief programs.  However, make sure you fully understand these options before proceeding.  Some creditors are also offering increased credit lines due to financial hardships due to COVID-19.  While this seems like an easy fix, this should be a last resort and should only be considered if you have made all other attempts to cut other expenses.

The anticipation and reality of your income suddenly dropping is incredibly stressful.  One way to combat the stress is to formulate an action plan.  Taking the time to re-evaluate your budget and identify areas where you can cut expenses will help you feel in control during unsteady times. Going through this process yourself will also enable you to guide and help friends and family when they start to panic.  For more help assessing your budget, call our financial advocates at (800) 642-2227.