Coping with a Drop in Income
11th December 2017
Over the last week, RBS have announced that they are closing 259 branches – almost a quarter of their network. This will mean the loss of 680. Meanwhile, Asda have announced that 800 staff will have to accept a pay cut or become redundant, and companies including Primark and Sports Direct have been ‘named-and-shamed’ for underpaying their staff. All this is extremely stressful news – especially just a few weeks before Christmas!
Primark have been forced to repay staff a total of £231,973 to compensate for making staff pay for uniform out of their own pocket. Meanwhile, Sports Direct employees faced long waits for security checks after shifts, and losing a quarter of an hour’s pay for clocking in just one minute late, which pushed their hourly wage below the minimum.
With incidents such as these, now is a pertinent time to discuss what you can do if you find your own income shrinking, when inflation keeps rising.
Budget and cut costs
First things first, now that you have less income, you are going to need to write up a strict budget and stick to it. Then, you need to try and find things that you can save money on by cutting out.
Calculate how much your new income will actually be after tax. Don’t forget to take into account all your taxes, and to keep an eye out if you have gone down a tax bracket. Then take away your rent and utilities, and other essentials that you can’t realistically cut back on.
Next, look at your past year of bank statements. You should make sure to include December, often the most expensive month, so that you know how much your expenses vary. Calculate how much you have been spending each month. Now, try making a note of some habits you could quit to save money – even just a little. This could be buying lunch at work, having Starbucks every week, smoking, drinking, eating at restaurants, or anything! Strip your spending down to the bare essentials: your food, bills, and other necessities.
Now compare those two numbers, if you still have money left over after taking your essential expenditure from your new income, then you can afford to add in a little luxury back into your life. Remember, though, it is advised that you should save about 10% of each paycheck, so try your best to keep setting aside some money every month, even if you have to lower the amount to 5% of your pay.
If you are reading this just to be prepared for the worst, the best advice I can give you is to make sure you have 6 months living expenses saved up, for exactly this kind of financial emergency. As well as being an effective financial safety net, having an emergency fund set aside will mean that you won’t have to borrow money in a pinch, saving you a significant sum on interest in the long run. If changing circumstances mean you’re no longer able to meet your current debt obligations, you might be eligible for a solution such as a Trust Deed or IVA. These plans allow you to reduce your monthly payments and write off some of the debt.
If you struggle to save money, you might consider setting up a direct debit from your current account to a separate savings account each month just after pay-day. Making sure that this money comes out of your account along with essential bills helps ensure that you don’t accidentally spend it over the course of the month.
Check if you are entitled to any Benefits
Whether you have lost your job entirely, or have only had to scale-back your hours or pay, you may be entitled to benefits that can boost your income and help you cope during a difficult time. This could be Housing Benefit, Jobseekers Allowance, or Working Tax Credits, but you should make sure you are getting all the help you are entitled to.
It can be tricky to know exactly what’s out there, and exactly what you are eligible for. Luckily, there are plenty of resources online to help you to check. Here are two benefits calculators to get you started, one from Turn2Us, and the other from EntintledTo.
Find a Second Job
If you have had your hours scaled back, you might find that you can pick up some more work to make up the difference. This is not easy, by any means, particularly as you will have to find something that will fit around your existing schedule. You could get around these time constraints by going freelance to supplement your income. You might consider offering local cleaning, dog-walking, or gardening. Alternatively, sites such as People per Hour match skilled professionals with clients looking to get work done. You could sell almost any skill on this platform – whether writing, photography, web design, or something completely different.
Find a New Job
Whether you have had your hours or pay cut, or face the prospect of redundancy, finding a new job is likely to be on your agenda. You might be entitled to some help with this from your old employer, so it’s definitely worth checking with them.
One important port when facing these changes is your local Job Centre. Their Rapid Response Service is tailored to helping people who have been made redundant to find new work – they could even pay for training. Before you leave your old place of work, be sure to get a written reference from your employer – this will be extremely helpful when searching for a new position.
Dealing with reduced pay or redundancy can be tough, but preparing well in advance can make it considerably easier. Adjusting your lifestyle and making sure you’re getting the help you’re entitled will help you through this difficult time.