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What to Do if Your Income is Plummeting

what-to-do-if-your-income-is-plummeting

2020 has taught us that anything can happen in life and none of us is immune to uncertainty. However, a decline in income, like the one we experienced during the pandemic, is not always caused by a global crisis or force majeure.

There are many reasons why personal incomes can fall sharply, even in the most calm period of the economy. Moving, changing jobs, downsizing, illness, maternity leave, divorce, mortgages and many other absolutely everyday situations may lead to a decrease in income, and very often for quite a long time.

And although a decrease in wealth is always unpleasant, it becomes doubly painful if a person is not mentally ready for it. Some become discouraged, others begin to squander the last on emotions, and it all ends in panic — how to live on?

Everything seems to be clear enough. When income falls, the whole strategy comes down to a simple word “savings”. But the truth is that you also need to be able to save, and without prior preparation, few succeed. So what to do when income has decreased, and you don’t have a job? What needs to be done first?

To Get Started, Find Out About Yourself

Firstly, try to understand how much, at the previous level of income, you spent on expenses. An analysis of such personal statistics will reveal several important parameters from which you can start building your strategy for a rainy day.

It is important to understand how much is spent on necessary expenses, how much on unforeseen expenses, and on entertainment, clothes, cosmetics and other important, but not necessary things that you can refuse in the first place.

When it becomes clear how much you spent monthly on rent, food, medicines, loan payments and other ongoing monthly needs, you need to determine how much you can save as much as possible if you replace part of the products with cheaper alternatives.

People often don't realize how much money goes into little things like coffee. And they do not always soberly assess the true necessity of certain things. For example, gel polish is an obligatory part of regular self-care for many girls, but honestly, admit that without colored nails, you still will be able to survive.

So “minimise” is the key word here. It means that you will have to switch from a “business class” taxi not to “comfort plus”, but to “economy” or even public transport.

By evaluating the difference between the actual level of spending and the minimum required amount of resources for current expenses, you will immediately understand which reduction in income is critical for you, and which is tolerable. And you will be able to develop a plan-which items of expenditure, in what sequence and to what extent will have to be cut.

what-to-do-if-your-income-is-plummeting

Don't Overestimate Your Savings

When income drops, people cannot (or do not want to) immediately change their habitual lifestyle and move on to austerity. They continue to live as they lived, and start utilizing their savings. And if we talk about an ordinary family, savings run out very quickly. At the end of the day the family is left with no income or savings.

Meanwhile, for internal comfort, some kind of airbag should still remain. Therefore, the spending of savings should go at a minimum pace and simultaneously with the inclusion of the economy mode.


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Savings for All Times-in Sorrow and in Joy

If a family faces a decline in income, then, as cruel as it sounds, the savings should affect everyone. And although many people are used to living by the principle “all the best for children”, there should not be such situations when parents live on bread and water, but a new hockey uniform is bought for a child or a themed birthday is arranged.

And this conclusion is not only economically justified, but also dictated by the concern for children. After all, if, as a result of super-austerity on themselves, parents lose their (physical and mental) health, they will not be able to fully work, earn money and be attentive parents in the future. And in the medium term, this is much worse for a child.

In addition, overcoming difficult times together will help unite the family and teach today's children to appreciate the work of parents more.

Don't Take New Consumer Loans and Hide Your Credit Card

No matter how banks offer quick loans with preferential rates and installments, do not give in to this temptation. “Then we’ll twist somehow” is a bad strategy. Any loan is a debt obligation, and the easier it is to get a loan, the higher the rate on it. Similarly with a credit card. Remember, it is only an illusion of having an opportunity. Therefore, let it remain lying in case of emergency somewhere in a distant drawer.


what-to-do-if-your-income-is-plummeting

It's Better to "Prepare the Sleigh in the Summer"

If difficult times have not yet come for you, you can have time to play safe. From this point of view, it makes sense not only to save for a rainy day, but also to diversify - that is diversify your income sources.

Let the salary be the main, but not the only source of it. For example, you can open a long-term deposit without capitalization. The interest from which will be transferred monthly to a separate account, providing you with some regular inflow (which is also better not to spend unnecessarily). A good help can be the rental of real estate - an apartment or a room.

By the way, for those who are thinking about investing in stocks, it is worth saying that as a safety net for a rainy day, this type of saving is the least suitable.

Firstly, the volatility in the market is very high and your investment account will not always be in positive territory, and secondly, investments of this kind are usually long-term and it is unlikely that you will be able to get your money back quickly or before the agreed time.

what-to-do-if-your-income-is-plummeting

Try to "diversify yourself" - your skills and your area of ​​application

For example, get additional education. However, do not confuse courses of self-development and real skills that can be monetized. That is, an additional course in calligraphy will significantly lose in terms of the possibility of generating income, for example, obtaining a driver's license or training as a manicurist.

In other words, the choice should be pragmatic, and going to paid courses in classical drawing is more likely if you expect that you can earn money with portraits to order.

By the way, a radical change in the type of activity very often opens up new opportunities for a person and helps not only to compensate for loss of income, but also to completely reconsider their priorities, views on life, work and employment. And in general, if you think of a decline in income as some kind of renewal and "creative destruction", it becomes much easier to survive this period.

© 2022 Hamza Hussaini

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