What To Do If Your Income Is Reduced
challenging enough to make a paycheck last when it comes on a
regular basis - but what happens when you have to take mandatory
vacation, or are paid for some months out of the year but not
others? With planning and a careful look at your finances, you
can survive the times when the checks are on hold but the expenses
What to do today
having enough money to pay for life's necessities can be pretty
scary, but there are a few things you can do to get you through
this time with minimal hardship.
first task is to take a look at your monthly expenses and prioritize
them. Decide what you need to pay for and what you can, at least
for now, let go. Housing, food, transportation, and insurance
should take top priority. Dining out, clothes, and entertainment
may need to be sacrificed for the time being. Remember, this isn't
forever, when the cash is flowing again, they can be resumed.
shopping, consider every purchase. Ask yourself if you really
need it, and if you do, can it wait a while, or can you get it
for less somewhere else. Getting in the habit of asking yourself
these questions will help you become a savvy shopper in both flush
and tough times. This will also help you avoid relying on credit
cards during this difficult period. It might be hard, but you
will be so much happier when that next paycheck comes in and it
is not promised to high interest debt.
you have credit card payments, and you simply don't have the money,
contact your creditors immediately. You may be eligible for special
programs that will keep your accounts in good standing. Waiting
until you are behind will not only increase your balance because
of hiked up interest rates and fees, but will damage your credit
you really need to scare up some funds, consider every option:
assets, from a garage sale to unloading securities (just beware
capital gains taxes for next year).
temporary employment elsewhere.
you have children who work, ask them to contribute to the household
and sell things if you have a creative streak.
a friend or family member for a loan. Chances are they won't
charge any or much interest, but be careful – these sorts
of arrangements have damaged many a relationship.
from your retirement account or cash value life insurance plan.
Be aware, though, that you are borrowing from an asset accumulated
for a specific purpose. These come with their own set of problems
if you can't pay them back.
are other sources of funds available, but beware: they may not
be in your best interest in the long run.
loans – Borrowing against future income can seem
like a great short-term solution, but with average annual interest
rates ranging from 390% to 871%, payday loans are no bargain.
card cash advances – There is often an origination
fee to take out cash from a credit card, and interest not only
begins to accumulate immediately, but is often higher than for
equity loans or lines of credit – Borrowing from
the equity in your home does have advantages - the interest
is often tax deductible, and the money is readily available.
However, if you can't repay the loan, you put your home in danger
note loans – These loans work by a borrower exchanging
the title and set of keys for a loan based on the vehicle's
value. Interest rates range from 30 to 120 percent, and if a
single payment is missed, the car can be repossessed.
interest unsecured loans – Usually lent in increments
of $5,000 or $10,000, interest rates for this new breed of high-risk,
unsecured loans can be as much as 47 percent.
Planning for Next Time
what do you do to prevent a scramble for cash next time around?
First, mark on your calendar the date that you will have to live
on less, so it doesn't come as a surprise.
money you get today will have to be stretched to cover those times
when there will be nothing (or less than normal) coming in. Resist
the urge to spend it all each month. Develop a detailed budget
to know what your monthly expenses are, and then prorate your
Your monthly expenses total $2,000. You don't get paid for two
months out of the year, so will have to have $4,000 ($2,000 x
2 = $4,000) set aside for those non-income earning months. For
each of the ten months that you do receive a paycheck, you'll
have to set aside $400 ($4,000/10 = $400) to cover the time you
won't get paid.
you know how much you will need to sock away, have the sum deducted
monthly from your checking account and automatically deposited
into a savings account.
you know you will be needing at least some of the money in a relatively
short time frame, make sure you have the portion you need in an
account that is easily accessible and penalty free (such as a
savings account or money market account.)
planning is the key to surviving a time when a paycheck is on
hold. By doing so, you'll avoid that dreadful feeling when the
lean times are on your doorstep - and your account is bare.