English | español
If you are faced with reduced income or increased expenses, you can adjust or develop a spending plan to help pay your bills. If your income will be affected for the long term, you can modify your spending habits to fit your current family finances.
During income loss, people often have difficulty being honest with themselves and others about their financial situation. Avoiding your problems can be destructive. The worry and stress caused by financial uncertainty may be worse than the problem itself. It's important to look realistically at your situation and actively seek solutions to your problems, even if it is uncomfortable.
Spending decisions affect the whole family
You need to talk with all family members about the situation. Let them know the family needs to change its spending habits and involve everyone in setting priorities.
When family members understand the tough choices that must be made and have a voice in making decisions, they will be more willing to accept the decisions.
As family members talk about what is most important, be sure to listen to what they say. Supporting each other can help you pull together as a family and get through these tough times.
Get control over your finances
Most families respond to reduced income by cutting their spending. Here’s how:
- Reduce spending on non-essential items or things that can be postponed. Examples include vacations, eating out and home furnishings.
- If the reduced income continues, you may have to cut spending on essentials. These include food, shelter, transportation and medical care.
- You may need to revise your budget. Make a new spending plan that identifies ways to get bills paid.
A spending plan is the most effective tool to help you get control over your finances. It is even more important when your income falls. A spending plan helps you to:
- Make better decisions about how to spend your money.
- Provide for needs before wants.
- Match your spending to your current income.
- Prevent family arguments over money.
Compare your spending both before and after your income fell. This way you can see more clearly what changes you must make.
Steps for writing a spending plan:
- Download the Spending plan short form (PDF) or Plan de gastos form (PDF) short form to:
- Go back and see where your money went under your former income.
- Set up a spending plan for your current income.
- On the form, record your total monthly household income from all sources. Include all family member income that is used for family expenses. Use the take-home amount — the net, or what you have after tax deductions. Do this twice — once for your previous income and once for your current income. Consider the following sources of income:
- Earnings from employed family members.
- Unemployment compensation.
- Withdrawal from savings.
- Tips or commissions.
- Interest or dividend payments.
- Social Security payments.
- Child support or alimony.
- Public assistance payments.
- Veterans' benefits.
- Record all family expenses.
- Complete the Keeping track of your spending form (PDF) to record your monthly expenses both before and after your income changed. Then you can fill in this information in the expense sections of the Spending plan short form. Here are examples of expenses to consider:
- Housing: Mortgage or rent, property taxes, insurance.
- Utilities: Electricity, gas, oil, landline and/or cell phone, water, garbage, cable and internet.
- Food: Groceries, school lunches.
- Transportation: Gas, car repairs and maintenance, parking, bus, taxi or car service.
- Health care (out of pocket): Doctor, dentist, clinic, hospital, medicine, glasses.
- Payments to creditors: Vehicle and other loans, credit card payments.
- Insurance premiums: Health, life, property, car, disability.
- Household operations and maintenance: Repairs, cleaning and laundry supplies, paper supplies, linens.
- Child care and related: Child care and child support.
- Clothing and personal care: New clothing, dry cleaning, hair care, cosmetics, toiletries, diapers.
- Education: Tuition, school supplies, music lessons, sports fees.
- Entertainment: Vacations, eating out, hobbies, movies, concerts, game rentals, newspapers, club dues.
- Miscellaneous: Pet expenses, gifts, charitable contributions, alcohol, tobacco, gambling, personal allowances.
Remember, not all expenses are paid monthly. Property taxes, insurance premiums and holiday gifts occur periodically. It's easy to forget about them and then not have the money to pay for them.
- Use the worksheet, Occasional and seasonal expenses (PDF), to identify these expenses. You will need to set aside some money in your monthly spending plan to meet these occasional costs.
- As you think about what you were spending and try to plan how much you can now spend, ask these questions:
- Which expenses are essential to the family’s well-being?
- Which expenses have the highest priority? See Deciding which bills to pay first to help you determine this.
- Which areas can be reduced to keep family spending within total income?
- How much can you afford to spend in each category?
- Balance income and expenses: On the Spending plan short form, add up your expenses and compare the total to your income. What can you do if your expenses are greater than your income? Look at your Spending plan short form for your former income and expenses and look for ideas on what to cut. Also consider the following strategies:
- Cut spending: See Strategies for spending less for suggestions. Focus on areas where you have flexibility.
- Increase your income: Can you add part-time or temporary work to supplement your income? Are you now eligible for public assistance programs that help you get necessities, such as food? See information about the Supplemental Nutrition Assistance Program (SNAP).
- Bartering: Swapping resources with others is a time-tested way to stay in control when money is tight. See the Bartering page for more information.
- Look at your other assets: What savings, investments or property do you have that could be used or converted to cash to meet expenses? See Making the most of what you have for more ideas. Keep in mind that borrowing and using savings may be only temporary solutions.
- Reduce your fixed expenses: What if too much of your income is going to fixed expenses such as housing or debt payments? You may need to refinance your loans, move to lower-cost housing, or surrender the property to your creditor to get out from under some of your debt. See Talking with creditors and Keeping a roof over your head for more ideas.
Once you have written a spending plan that matches your reduced income, you'll have to stick to it. Writing things down is not enough. You must use the plan to guide your spending.
- Keep a record of what you spend in each expense category to be sure you don't go over the amount on your spending plan.
- Print several copies of the Keeping track of your spending form (PDF) and use them to record what you spend. You could use a notebook.
- Computer spreadsheet programs and smartphone apps are options for tracking expenses, too.
- By monitoring what you have spent, it's easier to control your spending and live within your income.
If you are self-employed, seasonally employed or receive income from tips or commissions, your income may change from month to month. You can review the past year’s earnings or look ahead and carefully estimate your income.
Even though your income may change from one month to the next, many of your living expenses are the same each month. This mismatch of income and expenses creates uncertainty. And that can cause feelings of insecurity and increase family tension.
Reduce this uncertainty by establishing a monthly family living allowance. Your living allowance should equal what it costs your family to live each month.
When you do get paid, deposit most of that pay into a special savings or money market account where it will earn interest but still is readily available. Then, pay yourself each month. Withdraw the amount of your family living allowance and use it to pay your bills.
Boelter, L. (2006). Managing between jobs: deciding which bills to pay first.
Danes, S.M. & Stumme, P. (2014). Adjusting to suddenly reduced income.
O’Neill, B. & Xiao, J. J. (2012). Financial behaviors before and after the financial crises.
Robb, C.A. & Woodyard, A.S. (2011). Financial knowledge and best practice behaviors.
America Saves — Includes information for families on how to save and build wealth.
My Money — Federal Financial Literacy and Education Commission — Website dedicated to teaching all Americans the basics of financial education.
Reviewed in 2023