A guide to financial resilience after income loss
Experiencing a sudden loss of income can feel like navigating uncharted waters, creating uncertainty and worry about the future. Oftentimes, these changes are beyond your control. It's important to remember that financial recovery is possible with a proactive approach and a well-thought-out plan.
How to take control, reassess, and build a stronger financial foundation
The following steps will guide you through this process, offering strategies to manage your finances, reduce stress, and regain a sense of security. Taking immediate action and seeking assistance can transform this challenging time into an opportunity for financial resilience and long-term success.
Acknowledge the Situation
It is important to be honest with yourself about the change in financial circumstances.
Avoiding the problem can be harmful, and the stress from financial uncertainty may be worse than the problem itself. People in a money crisis often experience grief and may go through stages such as denial. Close family members or friends may be able to provide emotional support. Be patient with yourself as you move through these stages.
Acknowledge Stress
Recognize that financial uncertainty can cause stress.
Allow yourself time to process
Understand that feeling overwhelmed, scared, or even in denial is normal. Acknowledge these feelings without judgment.
Share with someone you trust about what has happened.
Verbalizing your situation can make it feel more real and less daunting.
Avoid Blame
Focus on the present and future, not on past mistakes. Blaming yourself or others will not solve the problem. Keep in mind that these changes are beyond your control.
Recognize Potential Grief
Understand that you may experience feelings similar to grieving a loss. This can include denial, anger, depression, and acceptance.
Communicate and plan with family
Spending decisions affect the whole family.
Discuss the situation with immediate family members so everyone is aware of the changes that need to be made.
Schedule a family meeting
Set aside a specific time to discuss the situation with select family members in an age-appropriate manner.
Be honest and clear
Explain the change in income in simple, understandable terms. Avoid jargon or complex financial language.
Invite open conversation
Encourage family members to share their concerns, ideas, and feelings. Listen to what they say.
Emphasize cooperation
Family members should be involved in setting priorities to foster support of the new plan. Working together during tough times can help the family pull together.
Set new expectations together
Discuss how the income loss will impact everyone's lifestyle, and involve everyone in setting new spending priorities.
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Assess your finances
Gain a clear picture of your financial situation to make informed decisions.
List expenses
Create a comprehensive list of all household expenses.
- Distinguish between monthly fixed expenses (e.g., rent/mortgage, insurance, car payments) and flexible expenses (e.g., food, utilities, clothing).
- Pay attention to non-monthly/periodic expenses that are paid just a few times a year.
- Use a spending tracker to record your expenses.
Determine income
Calculate the household total monthly income from all sources. Include salary/wages, social security, child support, investment income, etc. If income varies, estimate conservatively.
Evaluate debt
Identify all outstanding household debts.
- Use the How Much Do I Owe? worksheet to list each debt, creditor, outstanding balance, interest rate, and minimum monthly payment.
- Contact creditors to negotiate a reduction in interest rates, request hardship assistance, and/or a debt repayment plan.
- Identify strategies and create a plan to reduce debt by using the My Debt Repayment Plan worksheet
Identify assets
Determine what assets could be used to pay living expenses or to pay off debt. Include savings accounts, investments, real estate, and personal property.
Create a spending plan
Develop a family spending plan to determine where money will go.
A spending plan provides a clear overview of your household’s financial situation and supports more informed decision-making. A spending plan can help identify wants and needs, determine areas where expenses can be reduced, and highlight the gap between income and expenses.
Create a spending plan
Use the Spending Plan worksheet, an Excel spreadsheet, or a method of your choice.
Differentiate needs vs wants
Make choices that provide for needs before wants
Compare spending
Compare spending before and after income loss to identify necessary changes
Identify resources
Seek assistance to make ends meet (e.g., unemployment, food support, energy assistance).
Allocate funds
Assign specific amounts to each expense category based on household priorities.
Track and adjust
Monitor income and expenses regularly and make adjustments to the plan as needed.
Prioritize and manage debt
Develop a clear strategy for managing the household debt.
Understand the current situation of your household
Ask these questions:
- How long is the present financial situation likely to last?
- How much income can the household count on each month?
- How much money is needed to cover the family's essential monthly living expenses?
- How many creditors does the household owe, and what is the total amount owed? Completing the worksheet How Much Do I Owe? can provide a clearer picture of what and how much is owed.
- What assets could be used to pay off debt (for example, savings and items that could be sold)?
- What debts are the most important to repay first?
- What debts could be satisfied by voluntarily surrendering, or giving back, the item?
Prioritize bills
Decide which bills to pay first. Focus on bills that affect the family’s health and security the most, such as food, housing, utilities, transportation, and medical care.
Contact creditors
Reach out to creditors to explain the situation. Be honest about the household income loss and ability to pay. Inquire about hardship programs, reduced interest payments, or temporary forbearance.
Repayment plan
Work out a repayment plan with each creditor, and get the plan in writing.
Avoid new debt
Refrain from taking on new debt unless necessary.
For assistance in paying off debts, consult with a consumer credit counseling agency
Resources such as a debt management plan may be beneficial. Find a credible consumer credit counseling agency near you by contacting the National Foundation for Credit Counseling.
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Control spending
Take immediate action to reduce spending.
Studies show that many families do not adjust their lifestyle for about six months after their income is reduced. Following basic money management principles can reduce stress and help the household adjust to living on less income.
Identify non-essentials
Reduce expenses on items such as vacations, dining out, cable, apps, subscriptions, and entertainment.
Reduce essential spending
Look for ways to minimize spending on food, transportation, and utilities.
Consider strategies for spending less
Food
- Plan meals around foods in hand
- Create a shopping list
- Use low-cost protein foods
- Turn leftovers into "planned-overs"
- Grow a garden
- Participate in a community garden
Utilities
- Adjust thermostat settings
- Apply for energy assistance
- Request a free energy audit
- Use energy-efficient lighting
- Take shorter showers
- Transportation
- Car-pool
- Use public transportation
- Do your own vehicle maintenance
Medical expenses
- Maintain good health habits
- Use in-network providers
- Seek alternatives to the emergency room, such as urgent care, minute clinics, walk-in clinics, etc.
Clothing and personal care
- Repair and alter clothing rather than buying new
- Shop discount stores
- Learn to do your own hair styling
Recreation and childcare
- Choose free activities
- Have potlucks
- Form a babysitting co-op with other parents
Miscellaneous
- Reduce monetary giving
- Cancel subscriptions
- Evaluate allowances/support for children of all ages
Consider available resources
During difficult times, many families often rely on support from relatives, friends, religious groups, or community organizations to cover their monthly needs.
Utilize community resources
Explore local food banks and other support services available in your area.
Seek help from family and friends
Don't hesitate to ask for temporary assistance from loved ones.
Bartering
Consider trading goods or services with others to extend your resources and engage the whole family in the process.
Strengthen financial knowledge and skills
Increase your financial literacy and decision-making skills.
Financial education
- Create a plan to enhance your financial literacy to make informed decisions.
- Attend free workshops, webinars, or online courses.
- Read books, articles, and blogs about personal finance.
Seek Assistance
Consider seeking assistance from reputable non-profit organizations, such as consumer credit counseling agencies and Community Action Programs. Use reliable, unbiased, and non-commercial resources. Start with sources ending in .gov, .edu, .org, .mil, .us, .mn, or .info, and limit your use of .com sites.
Implement self-care strategies
Adjusting to reduced income can be stressful.
It is important to take care of your physical, social, emotional, mental, and spiritual health.
Prioritize your physical health
- Maintain a nutritious diet.
- Get enough sleep.
- Engage in regular physical activity.
Take care of your emotional and mental health
Acknowledge your feelings and seek healthy ways to cope with stress, such as practicing mindfulness, engaging in exercise, or spending time on enjoyable activities. The worry and anxiety caused by financial uncertainty may be worse than the problem itself.
Nurture your social connections
Maintain relationships with family, community (e.g., a place of worship), and friends to receive emotional support and avoid social isolation.
Anderson-Porisch, S. A., Heins, R. K., Petersen, C. M., Hooper, S. E., & Bauer, J. W. (2007). Dollar Works 2: A Personal Financial Education Program.