As the pandemic rolled through various states in the country, loss of income was inevitable since the health crisis affected the economy in a big way. Many industries were forced to adapt and survive the present landscape. Unfortunately, this meant that a lot of businesses had to furlough or completely let go of some of their employees.
This means that you need to prepare financially for this shift in your finances. If you are married and you have children, there is a possibility that you might see a dip in your household income. In situations like this, the best thing you can do is to be proactive and start preparing financially. Especially as about 39 million Americans are out of a job because of the pandemic according to Time.
A lot of people who are unable to prepare for this situation end up using all their savings just to get by. If you were able to save up for an emergency fund, you have a few months of a financial cushion. You can use this money to help you cover your budget expenses while simultaneously looking for a way to stabilize your income.
If there is an imminent loss of income in the near future, will your emergency fund be enough? Will it be all you need to get you back up on your feet? It is a crucial tool but you will need more than just your reserve funds. There are also other ways to help you prepare when the situation negatively impacts your finances.
Create a lean budget
If you are preparing for a loss of income, one of the areas you quickly need to focus on is your budget. If you do not have one at this point, you need to begin putting one together. Having a budget allows you to monitor your finances better. It will be difficult to make informed money decisions when you do not even know how much you have every month.
If creating a budget for the first time, make it as simple as possible. List down all your income on one side and expenses on the other. The goal is to keep your income higher than your expenses. If your total expenses are more than what you make in a month, you need to pivot around and make sure that you change the situation around.
You can create a lean budget where you start with your expenses and find ways to lower it down. Maybe cut out unnecessary items in your expenses or if possible, take some out. If you have more than one streaming service for entertainment, you might be able to do away with just a couple as you create a leaner budget.
Start a small business to offset the loss of income
A lot of people usually flinch with the idea of putting up a business of their own. But when you are just starting out, you can always start small. The good thing about starting small is that you can scale up when you feel comfortable. When starting a business, you can look at the things you already have knowledge of or love doing.
A good strategy is an income-positive hobby so you can get started. You begin with something you like. If baking is a hobby, you can start with that. You can bake and start selling them to family and friends. If you are a creative person and can create digital designs, offer your services to businesses. Most of them are conducting online operations so you can easily send a portfolio.
One of the factors that can make you hesitate in starting your own business is the cost. But there are ways to get started with a business idea without having to spend a lot of money in the beginning. One is looking for items you can sell online. Start with what you do not use at home anymore. You can also check out dropshipping or consignment so you can sell items without much upfront capital.
Look for a side hustle
Loss of income usually means you need to look for ways to augment that and as mentioned earlier, an income positive hobby is a great way to start. That can get you up and running as you look for a side hustle. Over the last few years, a lot of people have been relying on their side hustles to make ends meet according to CNBC.
Having a side hustle also helps you manage financial stress and mental health. If you know that you have an alternative source of income, you feel a little better even with the health crisis on-going. If your main source of income is affected, you know that you have a way to supplement what you lost. It might not be enough but it can cushion the blow.
If you have a side hustle, it can also broaden your financial option in the future. If your side gig starts to bring in a lot more funds into your budget, it can give you the option to focus on that instead. You can also use that money to help you strengthen your finances. It might even bring you a lot closer to your financial goals.
Go through your biggest expenses
When you experience a loss of income, your budget is the first thing you have to look into. As soon as you start to dive deeper, you will realize that you have to start cutting down on expenses. In the beginning, this is the easiest and fastest option to address your income situation. But over time, you can sustain those changes and help strengthen your finances.
If you have a comprehensive budget, it will be a lot easier for you to take a look at what your biggest expenses are every month. Once you do that, there is a big chance that your mortgage or rent payment would be on top of the list. You can look for a way to lower down your house payment. You can either refinance your mortgage at a lower rate or look for a place with a lower rent.
Just keep in mind that there could be initial and upfront costs when you refinance or look for lower rent. Weigh these expenses first versus the savings you will get. If you have two cars, you might be able to do away with one in the meantime. Selling one car can even help improve your finances in the meantime as you try to make ends meet.
Involve your family
If you are trying to prepare for a potential loss of income in your household budget, you need to make sure you include your family. They need to know what is about to happen and the changes that need to be done in order to adapt. Telling your family about it can also give them the chance to think of ways to help manage the family budget.
The children can help make sure that there are no unused appliances that are left plugged-in. They can also make sure that your food budget is on track. If you venture into a business idea to help increase your income, your family can help you as well. Do not try to do everything on your own or you can burn out fast.
It is important that you prepare for a loss of income during this health crisis because it is a real possibility for a lot of people. You need to find ways to ensure that you will have the funds you need to cover your expenses. If you don’t, you will slowly slip into debt and could have a challenging time trying to recover.