How to cope on a reduced income

So, the worst has happened and you’re facing a substantially reduced income because of ill-health or job loss or another misfortune. Here are some practical steps for managing

Take a deep breath…

When dealing with a sudden loss of income, you should act promptly to avoid making your financial situation worse – but having said that, take some time to think things through.

We’ve got some practical steps to recommend, but do remember to take care of your emotions, too. A sudden loss of income is a horrible thing to experience, and it’s helpful to acknowledge that. It’s reasonable to feel sad, angry or disappointed under these circumstances.

Consider how long you are likely to be on a reduced income, and plan accordingly. Is this a temporary or seasonal set-back, or is this going to be a longer-term situation?

Review your spending

Going through your bank statements for the last few months can help you work out where your money is going.

For most people, the largest items on their budget will be accommodation costs and food. But also consider pets, and transport.

Note outgoings to which you are committed – for example, contracts and payment plans.

Familiarise yourself with how much you need to spend to get by and to service your commitments, and use this to work out how you’re going to cover this.

Ask for help managing on a reduced income

Asking for help early in your lower-income journey will help you to avoid problem debt. Talk to organisations that you have borrowed from (including your mortgage lender), or that you have contracts with. You may be able to negotiate a payment holiday or a more affordable service level.

You may also be entitled to certain state benefits. Citizen’s Advice can help with this, and they can also help you deal with debt and access cheaper services.

Consider large spends you’ve committed to later in the year. Can you duck out of that pricy stag-do or destination wedding? Explaining your situation early will make it easier for everyone involved.

Look for ways to cut back on your spending

When reducing costs, look first at monthly costs that you can cut easily. This would be things that don’t relate to shelter and food and that you are not committed to.

Then look for places where you are wasting cash – this could be subscriptions that you don’t use, or regular leisure purchases that don’t bring you joy. It could also be contracts that have auto-renewed and that can be renegotiated.

Check you are not overpaying for services that you definitely need (like energy, internet, phone, insurance and self-storage) by shopping around and getting quotes from different providers. Get a quick quote from Store and Insure to see if you’ve been overpaying for your self-storage insurance.

We’ve got some articles on appliance switches that could help you cut back on expenditure, too:

How to make some extra cash

Selling some high-cost possessions might solve your cash flow problems for this month, but it’s probably not a sustainable solution (unless you have an unusually large collection of luxe items that you are not particularly attached to).

Freelance work is another thing to consider – even if you’ve been laid off, it may still be possible to get some shifts or consultancy work. But familiarise yourself with the impact this will have on state benefits and taxation.

You could also consider getting a lodger or housemate to help with your bills.

Getting by on less money

An unplanned reduction in income is never going to be an easy experience – but facing up to the situation and taking positive steps might relieve some of the anxiety and distress.

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