With the economy still recovering and the competition for jobs high, it is pretty common for people to have to take a lower paying job in order to get the life experience they desire. This may seem like a big blow to the family’s finances but, with a bit of preparation, it can be managed. The best way to handle an upcoming drop in income is to follow these helpful tips:
Pay off Debts
The absolute last thing you want to deal with when you are losing a portion of your income is paying off old debts, so that should be the first thing you take care of before your income drops. Start with paying off any credit cards you have as they typically carry the highest interest rates. If you are already in debt that feels unmanageable you can always contact a trustee about your financial options.
Save up emergency funds
Save up as much money as possible before changing jobs to ensure you have a large cushion of extra funds to get you through the transition. Experts recommend having about 3-4 months’ worth of living expenses squirreled away in a savings account in case of unexpected expenses.
Start keeping track of how much you spend on your essential monthly costs so you know what you will need to cover. Once you figure out how much you will need to spend each month to maintain your lifestyle, you will know how much extra you have to put into savings or spend on having fun or where you will need to cut expenses once the lower income arrives.
Save money where you can
Cutting back your unnecessary day-to-day spending is a great way to save a bit extra before changing jobs and get you in the habit of not spending extra money. Instead of going out for lunch or buying coffee, bring it from home and brew your own. Walk or ride your bike when possible and plan out your weekly menu in order to shop more efficiently.
Cutting back on any unnecessary spending is essential when you’re planning for a lower income. If it’s an optional cutback, ensure you’re giving yourself enough time to adjust to your new budgeting methods before moving into a lower salary bracket.