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Sometimes you are forced to take an unexpected pay cut. Perhaps you needed a job ASAP and took a job that paid less than your previous one, or maybe you had to cut back on hours to take care of a loved one who became ill. Or maybe you recently lost your job altogether. Whatever the case, making less money means that you have to revisit your budget to ensure you can fulfill your needs (and wants) without going into debt.
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I spoke to financial experts to get their best advice for budgeting after an unexpected reduction in income.
Get a Clear Picture of Where Your Money Is Going
“Start by taking inventory of where your money is actually going — looking back through bank and credit card statements from the last three months to take stock of all of your expenses,” said Stefanie O’Connell Rodriguez, a personal finance author and Discover partner. “Consider how your total monthly spending compares to your newly reduced income. Separate expenses into essentials — like housing, food, insurance, utilities, etc. — and nonessentials, like new clothing, entertainment, events, dinners out, etc.”
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This will help you see where and how you can cut your spending.
Look at Your Large Expenses First
“Consider your largest monthly expenses and try to reduce those, because a decrease in food, housing or transportation can make a huge difference,” said Barbara Friedberg, investing expert at Barbara Friedberg Personal Finance. “Shifting to public transportation, [having] one car in lieu of two, or exchanging an expensive gas guzzler for a small hybrid or EV can permanently reduce expenses. Food is another easy fix. There are scores of ways that are quick and easy to slash food costs, many of which require a bit of forethought. Shop with a list and stick to it. Choose less expensive meals — pasta, vegetarian and less meat. Consider buying in bulk, but make sure that the unit price is actually cheaper.”
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See If You Can Save on Other Fixed Expenses
“If people experience a pay cut, it’s important to go through all the fixed expenses and examine each one,” said Jillian Johnsrud, a progress coach who specializes in financial independence planning. “See which ones can be cut, reduced or paused, or switch service providers. [These expenses include] cell phones, car insurance, cable, internet, memberships, …….