Losing income is never easy, but it’s become increasingly common over the last year and a half: According to the Pew Research Center, 44 percent of U.S. adults say their household has experienced either job loss (including temporarily) or a pay cut since the beginning of the pandemic, with Hispanic and Asian adults most likely to say so.
That creates an incredible strain as people scramble to cover basic expenses like food and housing as well as monthly bills and everyday expenses, even if the reduction in income is temporary. Having a sense of your budget and avoiding procrastination is the key to doing well post-pay cut, says certified financial planner Manisha Thakor, founder of MoneyZen, a financial educational consultancy in Portland, Oregon.
She says your odds of surviving and perhaps thriving go up exponentially “if you know your expenses beforehand, immediately acknowledge something bad has happened and you need to adjust them — and open your mind to the notion that it’s really likely that by downsizing, you could actually end up having a richer life.”
If you review all of your spending, Thakor says, then you can get tactical about which items to cut: “Anything you’re spending money on that doesn’t bring you joy, like cable bills, activities for kids, things that have crept into your life about ‘who looks the best?’ — just step out of that competition,” Thakor advises.
Lent adds that you can make trade-offs: “I might need the Internet but not cable. I need a phone, but not that extra stuff on the phone plan. I need groceries, but I don’t need to eat out. I don’t need Netflix, I can go to the library. Anything you don’t need to spend on, don’t spend it,” she says.
Thakor suggests asking yourself if you could get by with less, such as whether you can trade in for more economical vehicles or consider having only one car. “People are driving more expensive cars than they can comfortably afford. Look at pre-owned certified cars,” she suggests. It’s easier to handle income loss, even a temporary one, without a large car payment each month.
Relish the challenge of being frugal
Luther suggests treating frugality like a game. When it comes to food, home decor or an accessory, she suggests asking yourself if you can make it for less than the cost of purchasing it.
“It really can be a lot of fun,” she says. She enjoys growing tomatoes and lettuce to make her own salads, which she estimates saves at least $10 a week.
Save up for next time
If you’ve had to deplete your emergency fund or don’t have one, consider deepening your cuts to allow savings that will cushion you in the next financial crisis. Thakor suggests a $2,000 emergency fund goal and then continuing to build — but even $500 can protect you from financial shocks.
“If you know you will be in a cash deficit in a few months, start stacking cash,” Lent says. Look for ways to make extra money, for example — perhaps ride-sharing, freelance work or selling items you no longer need, she adds.
This article was written by NerdWallet and was originally published by the Associated Press.