Paying bills in the best of times can be stressful. It can seem impossible to make your check stretch any further. So, what do you do when you are forced to take a pay cut? More and more Americans are experiencing unpaid, but required, vacation time, as well as job freezes. By following these tips, you will be more prepared to handle an unexpected pay cut.
What to do now
The best way to prepare for a pay cut is to pay attention to your financial habits now. Separate your main bills and required payments from any secondary purchases. Are there any purchases you are making on a regular basis that can be cut out and that money saved if your income is less than your standard paycheck? Are you spending more than necessary on groceries or entertainment? Cutting back and recognizing these spending habits can help you make smarter choices when your pocket is in a pinch.
What to do when your income shrinks
If you ever find yourself with less income than you budgeted for, it is essential to be aware of your financial habits. But sometimes even the most prepared individuals can be caught off guard. You will need to work quickly in order to stay on top of your finances and make all your payments on time.
The simplest solution to a pay cut is to pick up a part-time job that will bridge the gap between meeting your financial needs and your smaller paycheck. You can also look to sell items you no longer need by hosting a garage sale or selling online. One other option is borrowing from your retirement or life insurance plan. But be cautious of borrowing from these accounts. They are necessary to your future and can be difficult to pay back.
Plenty of credit options exist, but they can cause serious harm to your financial health if you miss payments.
Consider contacting your cell phone, internet, and cable companies to negotiate or switch to cheaper plans (if not canceling altogether). Similarly, it’s better to contact any lenders, including credit card companies, if you anticipate not being able to pay the next bill in full. You might be surprised how willing they are to negotiate a new payment plan while your income is lowered.
What to do to prepare for the future
Although taking a pay cut is never fun, you can make it through relatively stress free by preparing ahead of time. If you know when your pay cut is happening, you can plan a budget that works around that schedule. If not, make a detailed budget based around a smaller income than you are taking home now. You can work extra hours or sell some items that you no longer need to build up a savings account.
Living paycheck to paycheck can be difficult, but fully understanding your personal finances is the best way to prepare for when financial hardship hits.