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Living on a Reduced Income

Everyone experiences changes in life. Sometimes you plan for it and sometimes you have little control. Unexpected changes from a job loss, illness, divorce, or loss of a spouse are never easy to deal with personally let alone financially. A reduction in income is a tremendous challenge, but not insurmountable.

Things to know:

  • The first step in stabilizing your finances is developing a new plan and habits.
  • Set up a bill paying schedule that coincides with your pay days.
  • Create a dedicated space and time to work on your finances.
  • Negotiate with or change service providers.
  • Make small changes and stick with them to lower expenses.
  • New Plan

    Making adjustments and creating new habits to account for a reduction in income can be hard. No doubt you’ll also need some support along the way. As you take steps to rework your plan, identify new resources, and find the right help, you will move forward with peace of mind.

    The first step in stabilizing your finances after a reduced income is developing a new plan and habits. This certainly isn’t easy, but it will make all the difference in the world if you do it right. You might be tempted to revert back to your old routine at times, but you will stay on track if you build the right mindset and the right plan.

    Here are some tips for making a new plan that you can maintain:

    • Put together a workable budget.
      • Creating a clear picture and understanding of what you need to do is an important first step. Follow the seven-step process described in Budgeting to build a solid foundation.
    • Don’t completely cut out anything.
      • It’s usually more effective in the long run to find a way to reduce everything a little than to totally give anything up. This way you are still enjoying the same things with a bit more control.
    • Don’t do too much at once.
      • You didn’t get into the situation you’re in overnight, so it’s not likely that you’ll be able to change it overnight. Those who try to do too much at once often fail and become frustrated. Set yourself up for success by taking it one step at a time.
    • Don’t believe you can’t change your expenses.
      • Any expense can be changed. It really comes down to a question – “What are you willing to do?”
        (Check out Smart Spending Habits for some starter ideas.)
    • Figure out your monthly expenses vs. income, but focus on cash flow.
      • Cash flow — meaning how much you need at certain times — is one of the most overlooked aspects of budgeting. One of the best methods is to use a calendar to map everything out according to payment date so you can look ahead and have the ability to stay organized.
        (The Payment Calendar can help you get started.)

    Follow these steps to create a new plan that works:

    1. Find a manual or electronic calendar that works for you.
    2. Input your pay dates for bills (utilities, rent, etc.) and expenses (groceries, gas, etc.).
    3. Build in payments for periodic expenses (taxes, insurances, emergencies).
    4. Input important dates for periodic expenses (birthdays, anniversaries, etc.).
    5. Schedule specific days to sit down and pay bills.
    6. Organize bill payment addresses in your computer “bookmarks” or in a notebook.
    7. Save all important documents in an accordion-style budget box.
  • Lowering Bills

    Chances are most of us will have to work through the challenge of living on a reduced income at some time in our lives. During these times we know that adjustments are required. In some cases it might be the little things that end up making a big difference. In other instances, it might take a bigger adjustment such as lowering some of our bills.

    To lower your bills (TV, phone, Internet, insurance, etc.), focus on doing three things: research, negotiate, and replace.

    Research—Knowledge is power. You need to know your options and how they work. Tips for research:

    1. Use cost comparison sites such as, google shopping, or
    2. Find out what competitors are offering.
    3. Keep records and stay organized.

    Negotiate —Always believe that everything is negotiable! To be good at negotiating you have to do the following:

    1. Make sure you’ve done your research and use your knowledge to your advantage.
    2. Be fair. Understand that there has to be something in it for them too.
    3. Decide ahead of time how far you’re willing to bend.
    4. Clearly, confidently, and concisely make the case for what you want.
    5. Be willing to walk away and find a replacement.

    Replace—Always think creatively to find alternatives for expenses you can’t keep any longer. They might not be the most convenient, but will still meet the need at a basic level. For example:

    • Use a digital antenna and an online service instead of paying for cable.
    • Use Internet phone services instead of paying for a cell or home phone.
    • Use the local library for movies, music, and Internet.

    Check out the Lower Your Monthly Bills Checklist for specific ways you can save right now.

  • Lowering Expenses

    Reworking your expenses may happen slowly, but don’t let that discourage you. Changes don’t occur at the same pace for everyone. Naturally we want to keep everything the same as it has always been. Sometimes change can be overwhelming and it’s easier to continue to live as we always have. If you take things one step at a time, you will eventually get there. Here are a few tips to get started on the right foot:

    • Pay with cash, not credit.
    • Buy used.
    • Wait before buying.
    • Make your lunch instead of buying.
    • Consolidate trips to reduce gasoline costs.
    • Research any resources for which you may qualify now that your income is lower.
    • Consider eliminating cable.

    Our best overall guidance: put a freeze on spending for things that you really don't need, establish your goals, build a workable budget, and then make a commitment to stick with it. The most important thing is that you have a clear sense of purpose and feeling that you can get it done. And we believe you can!

    Take a look at Wise Spending Tips for a number of ideas that will help you improve your spending and save for your goals.