In previous articles, we’ve explored various ways to make, manage and keep your money. However, life can throw unexpected challenges our way, and a sudden drop in income is one such challenge that many people face. In this article, we’ll discuss practical strategies to navigate this situation effectively.
Tap into your emergency fund
When facing a sudden income drop, your emergency fund can be a lifeline. If you’ve diligently saved for emergencies, now is the time to put that money to good use. Remember, this fund is specifically designed for situations like this.
Emergency funds typically consist of three to six months’ worth of living expenses. The purpose is to cover essential bills such as rent or mortgage, utilities, groceries, and healthcare costs during times of financial instability.
Trim unnecessary expenses
While a drop in income can be stressful, it’s often temporary. Consider trimming your budget by cutting out non-essential expenses. This belt-tightening approach can help you weather the storm until your income stabilizes.
Start by reviewing your monthly expenses. Identify discretionary spending areas where you can cut back. This may include dining out less frequently, cancelling unused subscriptions, or postponing non-urgent purchases.
Negotiating financial relief: the loan moratorium
If you have loans, especially a home loan, don’t hesitate to reach out to your bank. Many financial institutions offer loan moratoriums during times of financial hardship. It’s worth trying, especially if you’ve been a responsible borrower.
A loan moratorium allows you to temporarily pause or reduce your loan repayments. While interest may still accrue during this period, it provides breathing room for your finances. Be sure to contact your lender as soon as you anticipate difficulty in meeting your loan obligations.
Consider a side hustle
Sometimes, adversity can open doors to new opportunities. Consider exploring a side hustle or passion project that you’ve set aside. Side hustles can provide additional income streams and may even turn into a full-fledged business.
The gig economy offers various opportunities, from freelancing and consulting to selling handmade crafts or offering online tutoring. The key is to leverage your skills and interests to generate extra income. Platforms like freelancing websites, online marketplaces, and social media can help you get started.
Preparing for the unexpected
In times of income uncertainty, preparation is key. By tapping into your emergency fund, trimming your budget, exploring loan moratorium options, and considering side hustles, you can navigate income drops with greater ease. Remember, financial resilience comes from a well-rounded strategy that includes savings, budgeting, and alternative income sources.
Facing a drop in income can be challenging, but with the right financial tools and strategies, you can weather the storm and emerge stronger on the other side. Keep in mind that building and maintaining a financial safety net is an ongoing process that can provide peace of mind in times of uncertainty.
Follow Luca Caruana’s weekly column here, and his LinkedIn account or his Instagram for more budgeting hacks. For other money-related columns, check out Luca’s tips if you feel like you’re always broke, and his advice to help change the narrative about women and money.