How to manage with a drop in income

October 02, 2009|By LYNN LITTLE / Special to The Herald-Mail

We live in tough economic times, but many circumstances, -- including natural disasters, sudden military deployments, layoffs or furloughs, family changes, medical emergencies and divorce -- can lead to a drop in income.

With some planning you can get a better handle on your finances and help reduce the stress of making ends meet with less money.

The following steps will help:

Try not to panic.

The natural tendency is to worry and wonder how you'll make it, so try to remain calm. If you feel a great amount of stress, you will not be able to think as clearly and you may make decisions that you will later regret. Make every effort to keep a routine schedule in your life. Try to eat well and get enough sleep. Managing money can be stressful, but there is help. Call the Maryland Money Helpline at 877-254-1097 for free financial counseling.

Take stock of what you have and what you owe.


Begin by taking an inventory of all the resources you have. Get out bank statements, investment papers, retirement funds and insurance information. Consider all of your assets, such as cars, property, equipment, etc. Examine how much debt you have as well, including loans and credit card balances. Determine what regular monthly bills you have. Note any irregular or periodic expenses due within the next few months.

Make a plan and stick to it.

After you have inventoried your financial situation, make a plan for how you will reduce your spending and pay your bills. Prioritize bills by which is the most important. At the top of the list, should be bills that:

o Maintain shelter (rent or mortgage)

o Maintain vital services (utility, phone, transportation insurance)

o Cost the most to postpone (bills with late penalties, repossession or disconnect/reconnect charges)

If you find you can't cover all of your bills, call creditors and discuss your situation. Most companies are willing to set up a plan with smaller monthly payments for those people who find themselves in need. It is difficult to admit to someone that you cannot make ends meet and that you need help; however, it may spare you from ruining your credit rating and having your property repossessed.

After you have set up a re-payment plan, stick to it. If you find that you still cannot make the payments, call the company again and see if payments can be reduced even further. Companies want to see that you are putting forth an effort to pay your bills; therefore, communication with them is important. If you simply don't pay your bill or don't follow the agreed payment plan, they will most likely not be willing to help you.

Decide where you cut back.

Find ways to reduce your expenses. It may be as simple as clipping coupons or packing lunches everyday instead of eating out. Assess car-insurance premiums to see if there is coverage on older cars that could be dropped or if deductibles could be raised to help lower monthly payments. Compare quotes from several insurance companies for the lowest rate.

Look for sales on clothing and food. Avoid consuming excessive electricity by turning off lights. Reuse items (such as using coffee mugs instead of disposable cups). Walk through your house/apartment with family members to find creative ways to cut costs. Carpool with friends and neighbors and share services, such as babysitting.

For more ideas on saving money, visit and click on "money."

Find ways to make extra money.

You may find that a little extra income would help you squeeze through a time of tight money. Clean out your house and have a garage/yard sale to make a few extra dollars. Put your skills to use. Can you sew? Paint? Clean? Babysit? Make home repairs? Ask friends and neighbors if they need any work done that you could help with. Children may be able to help by getting after-school jobs or by doing work around the house that you might otherwise pay someone else to do.

If your income has dropped significantly, your first instinct might be to give up hope. However, if you take some time to organize your assets and find creative ways to effectively use your skills and your resources, you can take control of your situation and keep yourself afloat.

For additional advice and guidance visit and click on personal finance, then "managing money in tough times." You can also check out and click on "tips for surviving the economy."

Lynn Little is a family and consumer sciences educator with University of Maryland Cooperative Extension in Washington County.

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