Adjusting to Reduced Income Due To COVID-19
COVID-19 is having a profound effect on household finances across the country. Many Americans have been laid off or required to accept reduced hours on the job. Parents who continue to work find themselves in a childcare bind due to closed schools and daycare centers. If you’re affected by any combination of these circumstances, your family may need to live on reduced income until the virus can be contained and the economy rebounds. Here are some suggestions for managing through leaner times:
Create a budget. Living on less income is about finding balance. Your expenses cannot exceed your income if you are to avoid dipping into savings or going into debt. A realistic budget reveals what you have left after fixed expenses such as your mortgage payment, utilities, car and health insurance premiums are taken off the top. You decide how to allocate the rest, for groceries, gas and other typical costs of living. With a budget to guide your spending, you remove the guesswork from living within your means.
Reduce discretionary spending. You may find it necessary to decrease your budget for clothing, travel, eating out and entertainment. If you’re struggling with where you can tighten your belt, look at your spending habits and flag recent “optional” purchases. For example, quarantine living has caused many of us to do more online shopping and order takeout more frequently, but both of which can quickly add up. Slash the apps that eat away at your bank account. Consider creative ways to save, such as buying in bulk, splitting groceries with a friend or neighbor or cutting down your cable bill.
Review income tax withholding. You may be able to reduce your tax withholding to increase what’s left of your monthly paycheck. This may mean no refund at tax time, but it will put more into your pocket when you need it, to help you stay afloat.
Revisit your savings. The current health and economic crises are stark reminders of the importance of an emergency fund. Financial experts recommend your slush fund cover a minimum of three to six months- worth of expenses. (This is in addition to your retirement account or other long-term savings.) Consider keeping your emergency funds in a separate checking or money market account so they are not blended with your regular finances. If you have an emergency fund, you can tap these resources as a last resort to prevent late payments.
Seek financial guidance from a professional. A financial advisor can be a resource during times of uncertainty, especially if you have investments and have begun retirement planning. If your circumstances are dire, there are financial counselors who can help you get out of debt and avoid foreclosure or bankruptcy.
Take the long view. The current circumstances are unusual. It’s difficult to predict when things will return to some form of normal. Frugal living is a wise approach that will help you get through these challenging economic times.
Kristin Summers is a Financial Advisor with Ameriprise Financial Services, LLC. She specializes in fee-based financial planning and asset management strategies. 630.291.5747 email@example.com www.ameripriseadvisors.com/kristin.summers
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
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Content provided by Women Belong member Kristin Summers