4 steps to deal with a cut in income

Life Lessons

4 steps to deal with a cut in income

30 million plus.

No, that’s not the latest Powerball jackpot — it’s the number of U.S. workers who filed unemployment claims by mid-July.

A job loss, furlough or reduced hours can be disastrous for your budget and your ability to maintain financial stability. That’s especially true if, like too many Americans, you don’t have adequate emergency savings.

If you find yourself in this challenging position, here are 4 immediate steps recommended by Knowledge of Financial Health, or KOFE, a leading financial education provider and Colonial Life partner.

Cut discretionary expenses.

Eliminate anything you and your family don’t absolutely need as soon as you’re aware your hours or pay will be reduced: streaming services, magazine subscriptions, memberships, salon visits. Cut back your cell phone plan to basic, bare minimum service. And avoid shopping online with the extra time on your hands since targeted advertising makes it all too easy to impulse buy.

Plan how to restore your earning power.

 First, assess if your employer is likely to reinstate your job with its previous hours and pay. If it doesn’t look likely — or could take an extended time — start looking for another job. But if the outlook is more promising, consider a second or part-time job to tide you over. If your area of expertise has opportunities for consulting or freelancing, today’s increased appetitive for remote work may open wider doors than your local community.

Consider a tax withholding adjustment.

Taxes withheld from your paycheck are based on your income and what you’ll owe the IRS next April. If your income drops and too much is withheld, you’re giving the government a free loan of your money. Decreasing your withholding means you’ll bring home more money and help offset lost income. Instead of planning on big refund next year, aim for breaking even so more of your money is in your wallet during the year.

Explore debt consolidation.

Debt consolidation may help you lower your total monthly payments. For example, you may be able to consolidate credit card balances into one payment using a debt management program you enroll in through a credit counseling agency. A similar approach applies to federal student loans (although it’s a separate process — you can’t combine credit card and student loan debt). You’ll still have to pay off all your debt in full, but in a way that’s more manageable on your reduced budget.

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