13 ways to prepare for income reduction.

budget © by 401(K) 2012

A reader suggested an article on preparing for income reduction. Not layoff or job loss, but rather a partial loss of expected funds – salary reduction, an end to child support and the like.

“Where you still have a job, but really need to evaluate the ‘new budget’,” she says.

I’ve written on this subject before, calling it the “financial fire drill.” You figure out how little you can get away with spending – and you do it with an attitude of calm preparation, not fear of deprivation.

This baker’s dozen of tips will get you started.

1. Figure a baseline budget. This is the absolute minimum needed for basic shelter, food, utilities, and mandated payments like child support or student loans. Best-case scenario: Trimming some budgetary fat partly or mostly offsets the income reduction.

2. Track current spending. If you haven’t got a budget, build one – with pen and paper or with a free online tool like Mint.com. Again: Knowing where it’s going can show you places to cut.

3. Pay down any consumer debt. Trimming some budgetary fat, as noted above, can give you extra bucks to throw at debt. Two other potential tactics: Try to negotiate a lower interest rate or see if you can get a balance transfer.

4. Ease off on prepayments. Have you been paying extra on your mortgage or your student loans? Redirect that money into savings; as my MSN Money colleague Liz Weston points out, even a $500 emergency fund can make a huge difference.

Cut some costs

5. Re-think your auto. Can yours be a single-car or even a car-free household? If so, sell or garage one vehicle. Don’t cancel your car insurance outright, since it can be hard and/or expensive to get back in. If you truly need wheels, then talk to your agent about raising your deductible. While you’re at it, look for a better insurance rate.

6. Inventory your stuff. Is any of it saleable? Somebody paid $1,200 on eBay for my little plastic statue of Bob Feller.

7. Cruise frugality sites. May I suggest the following: my blog (naturally!), The Dollar Stretcher, Wise Bread, Get Rich Slowly and I Pick Up Pennies. May I also suggest that you incorporate changes gradually, so that you don’t burn out?

8. Seek utility discounts. Some have reduced rates for people in reduced circumstances.

Just in case

9. Got kids in school? Talk to the financial aid office; a change in circumstances might mean your scholar is eligible for additional help. (Avoid more loans, though.)

10. Still paying your own student loans? Learn about forbearance now, before you need it.

11. Know what’s out there. Go to Benefits.gov to learn about the Supplemental Nutrition Assistance Program and any other programs for which you might be eligible. Check local resources like food banks and public health clinics, too; visit the 2-1-1 US home page for links to services in your area. As with forbearance, find out these programs before you need them.

12. Seek a side hustle. Even a few extra dollars could be a huge help. See “Can’t get a job? Get a microjob!” for specifics.

13. Think about boarders. Maybe a friend or relative (or a grad student) needs a room. Or check out home-stay programs like Airbnb.com and Roomorama; one couple I interviewed pays most of the mortgage this way.

Does all this sound drastic? Remember, you don’t have to do all of it – and you might find more suitable ways to cut costs.

Attitude is as important as any frugal hack. This is not about deprivation, but rather about smart use of available funds. If your income is reduced your outgo better shrink, too. Continuing to live the way you always had would be financial suicide: Those credit-card bills will keep coming in whether or not your ship eventually does.

Readers: Have you had to (or did you want to) cut spending? Got any advice to share?

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  1. take_flight

    I’ve been there, and it’s a great subject to talk about. A serious reduction in income can be shocking, and worse, depressing. You don’t need to look very far to find people who have lost income and have tens of thousands in credit card debt because that’s all they knew how to do.

    A few years ago, our income was cut 75%. Here is my best advice:

    -Cut non-essentials, cable, internet, etc.
    -Find ways to get what you need cheaper. Re-evaluate your grocery list, search recipe’s by ingredient at sites like supercook dot com, to use what you have on hand.
    -Utilize your public library, (we live in a very small town, and our library has internet, DVD’s, free events, etc.) My kids even still went to the movies, we just purchased discount tickets from the local drug store.
    -Keep your utility bills up to date. It’s much easier to negotiate with them if you have a history of paying on time. If you know you’re going to be late, call them, they can’t help you if they don’t know.
    -Go through your garage and closets and sell whatever you don’t need for extra cash.
    -Do not buy paper products, and learn to make your own cleaning supplies and detergents.

  2. Great article, Donna. We have one retirement coming end of December.

  3. Pam Weaver

    Good idea. I am using the same idea to “re-think” my retirement spending. Re-setting priorities is a good thing and we can always use more spendable assets!

  4. Holly Samlan

    I had NO choice but to do this in Aug 2010 when, at 64, I lost a job w/a take home of >2k/month.

    I am still fighting to keep expenses as low as possible. My (adult) kids & other family do NOT understand why:
    I cringed to see my cousin toss the Turkey carcas last Thur
    I NEVER admit where I bought MUCH of my clothing (aunt who thinks Macy’s is slumming) since it comes from a charity/resale shop
    Why I have such a slow/old fashion ISP (its 2.5x cheaper than ANYTHING else available in my area.

  5. I love articles like this!
    I think everyone should plan for worst case scenarios. I won’t go so far as planning for the zombie Apocalypse but I will prep for a job lose or pay reduction.

  6. ImJuniperNow

    I used your “financial fire drill” years ago when I bought my first condo. It wasn’t that I over-extended myself. (Being the good frugal person I am I bought below my qualification amount.) And I wasn’t necessarily spending more, just differently. (Rent vs. mortgage, maintenance fee vs. water heater/furnace) It helped me get thru the initial OMG, what if I can’t pay these bills?

    I’m buying another to use as a rental and am getting my mindset ready for another FFD. Thanks for the reminders!

    Oh, by the way, I found a small stone in a bag of pistachios and thought of you and your beans.


    • Donna Freedman

      @ImJuniperNow: Thanks for sharing a positive application for the financial fire drill.

  7. Good article. I know at first sight it can be a bit sad for some to have to reevaluate their spending and/or lifestyle but I really want people to know that by incorporating those items you talked about in addition to others, you really will find over time to be happier. The stress of money, in my opinion, weighs on a person only second to the health of loved ones. Give yourself the gift this holdiay season of less stress and freedom from worry. P.S. Another great blog is http://www.mrmoneymustache.com (he is a bit bold but very informative so don’t read if you are sensitive to directness.)

  8. Fabulous as always though FYI GovBenefits.gov is a broken link 🙁

  9. BTW, Jamie I checked out mrmoneymustache & so far it is great info. Thanks for sharing.

  10. Condition

    You and your dauther are boring and pathetic.

  11. Ro in San Diego

    I did my first FFD 4 years ago when my A** of a boss was gearing up to fire me.

    At that time I did a very detailed analysis of spending eventually tracking expenses with “Mint” software which keeps my budget in check. I learned how to save money using coupons. I signed up with bloggers like Donna to learn how to think about money differently.

    Luckily, I found a great job with the same company with a raise, promotion and better surroundings altogether at which I am still happily employed.

    However, I kept the FFD going even though the finances have improved. It has allowed us more freedom as we approach our retirement years to live on far less than we make each year. We have room for luxuries, we have room for OMG the furnace and car both broke down too.

  12. As always, great article, Donna!

  13. We finally had this happen the opposite way — Husband’s salary literally doubled with a new job! Granted, we’d been making poverty-level income before that, but still…

    Can you do an article on when your income suddenly gets bigger – what to avoid?

    In our case, our spending changed very little; ironically, we probably went out to eat less after his promotion, than before it. I started pulling a lot more money into savings — Husband has wanted to go to Europe to revisit some places he went during the Navy, and a good share of this extra money in savings is going to fund just that. Once we find a good deal, that is.

    I’d be happy to write a guest post on it, if you like, just for the fun of it.

  14. Great plan, Donna! Car expenses are a big drain and working on lowering them is important. Be sure to tell your insurance agent if you are not using a car or not using it as much to get lower payments. Cooking at home saves a ton of money and learning to cook inexpensive healthy meals is a worthy quest!

  15. Thanks for this post I am always looking for ways to slash expenses. I think keeping track of bills, ATM cash withdrawals and misc. expenses can give you at least a 10% increase in your budget.

    • Donna Freedman

      @RichUncleEl: Keeping track is key. Otherwise money just sort of oozes out around the sides. (Eeewww.)

  16. Darlene M

    Thanks Donna,
    Appreciate the tips as always!

  17. I cut my cable and phone and started doing some freelance mystery shopping (doesn’t pay much, but it covers my groceries and gas). Since I am a contract worker at my “day job”, I have no benefits and little job security, although I make a good hourly rate. I’ve also been unemployed a few times recently. I check my finances on mint.com every day and find that’s very helpful when your income can vary depending on the hours you work. It can also show you how making one change (like cutting TV) will give you so much more to play with.

    • Donna Freedman

      @Liz: Some people find they can do without much TV altogether, and others can get sufficient fixes from Hulu, Netflix, et al. I like the idea of checking your finances regularly, too; it could become obsessive, but I find it comforting to know what’s there.

  18. I’m a little late to the dance, even though I read this several days ago. Would you considering writing a post about planning for an extended stay away from physical home? Sooner rather than later would be doubly nice too! Due to job issues-read that as none since I’m self-employed and my source has dried up-I’m considering returning to my “always will be home” after the first of the year to work for an extended time. This home is a thousand miles away, so it’s not like I’ll be able to run across town to pick-up something I forgot.

  19. B Biondo

    Call you cable company and ask for specials. I reduced my cable bill recently by $35 per month and retained the same service. This new rate is applicable for one year. Also, placed my car insurance with the same company as my homeowners. I received a $200 discount on my homeowners policy for multiple policies and decreases my car insurance by $40 per month and increased my coverage and added an umbrella policy. Still looking for ways to reduce my expenses and will continue to view your site for more help. Thanks


  1. HOW PAYDAY LOANS MAKE LENDERS RICH AND BORROWERS POOR | Barbara Friedberg Personal Finance - […] Surviving and Thriving; 13 Ways to Prepare for Income Reduction […]
  2. 13 Ways to Prepare for an Income Reduction | Heart of Florida United Way - […] article originally appeared on “Surviving and Thriving” and has been reposted with permission by Donna […]

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