If a sudden reduction in income strikes your family, there are a number of steps you can take to minimize the hardship. The first impulse for many people is to panic. Although this is common, it is an impulse to avoid as much as possible. One way to reduce anxiety is to assure yourself you are doing the best you can with your family's resources. Here are some suggestions for helping you direct your financial affairs and make informed decisions.
Control as much of the situation as you can. Don't waste energy blaming yourself or others. Loss of income affects many people for many reasons and often the reasons are not under your control. Set your mind to dealing with the situation. Recognize that your life will be different for a time. You need to see your situation as it is; not how you wish or think it is.
Get information about your financial and family resources down on paper. Take stock of what you own and what you owe. Write down the income you expect to receive and the expenses you anticipate. List family members' talents and skills that might be used to produce income, save money, or trade for needed goods and services. Is there another earner already contributing to the family income? Can the contribution be increased? Can a family member get a temporary job? Could you start a business at home?
You will also want to learn about community resources available to help you and others in times of economic and personal distress. For example, free or low-cost health services, food assistance programs, local thrift shops, family counseling services, or financial counseling services may be available in your community.
Once you know the figures and see them in black and white, you can develop a plan for making the most of family and community resources. A little knowledge goes much further than either imagining the worst or ignoring reality.
Communicate with family members about your situation. Your family will need to work together to carry out the decisions you make together. Discuss the money you have and where it is going. Which expenses are important and which ones are less important? Family members need to agree on which items are high priority, which are less important, and which can be postponed or replaced by less expensive substitutes until your financial picture improves.
You will also need to communicate with creditors. One of the most stressful outcomes of a reduction in income is the worry that creditors are all around, impatiently waiting for you to pay overdue bills. Avoiding them is not the answer. Read your credit contracts to find out what happens if you miss a payment and then contact your creditors before they contact you.
When communicating with creditors, know how much income you can count on, what your expenses will be, and how long you expect your income to be reduced. Present a reasonable plan for paying your debts. Work out an agreement with each creditor that is acceptable to both of you. Your plan may be that you make smaller payments for a period of time. Although this may increase the total amount of your debt, it will help ease the burden of a decreased income. Most importantly, do not ignore bills and past due notices. Fears caused by uncertainty and avoidance are always worse than facing the facts and following a plan to take control.
Change your lifestyle. Studies show families respond to reduced income by cutting their spending. Many families reduce spending for items such as vacations, eating out, and home furnishings first. Then, if the reduced income continues, many families report spending less for basic needs including food, shelter, transportation, and medical care. The studies found that families who quickly made changes in their spending habits were the most satisfied with how they were managing. Families who did not make changes felt more out of control and more dissatisfied.
Look for ways you and your family can use time, energy, talents, and knowledge to reduce expenses. If you are buying something new, consider substituting a less costly item. Take better care of the things you already own. Find new uses for the resources you already have. Expand a skill into an income-producing activity. Swap items and services with friends or neighbors. Use community resources such as food stamps, utility assistance, and health clinics. When your income is reduced, each spending decision is critical. Remember to use your resources where they do the most good in meeting your needs and wants in the short- and long-term.
While changing your spending patterns can be painful, the pain can be minimized if family members communicate openly and if the family works together on developing and carrying out a plan. Getting the most from the family income during this time requires careful planning and wise spending decisions.
Living on a reduced income can be temporary or more long lasting. It's up to you to chart a course for your family finances by taking control, communicating with family members and creditors, and making necessary changes.
The series, When Your Income Drops, includes eight factsheets with more detail about the steps for maintaining family financial control when your income is reduced. The publications in this series are:
Reviewed 01/08
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