Budgeting when your income drops
Published 23 August 2015 by Emily Bancroft
If your income drops, you’ll need to change the way you budget.
If you’ve put together a budget to make sense of your bills and other spending, you’ve probably based this on what you’re bringing in each month. Changing this if you start earning more isn’t too hard – after all, it just means more to spend! But how could you be affected if your income goes down and you don’t have enough money to cover all of your financial obligations?
Even if the change in your income was something you were expecting, you’ll still have to make a new budget. Let’s take a look at how a lower income can affect your budgeting.
Why has your income fallen?
There are many reasons why the amount you’re bringing in could drop. You might have had a career change, meaning you’re now in a more junior role and get paid less. Or maybe your job hasn’t changed but you’ve just had your hours cut at work. Or you may have had your benefits reassessed and are getting less.
Earning less isn’t necessarily a bad thing, and it could even be something you’ve chosen to do. For example, if you’ve decided to go part-time to spend more time at home with the kids, you’re probably pretty happy about this! However, it will still mean that you’re not bringing in as much as you were before, so it’s important to draw up a new budget so you can still cover all of your important bills.
Drawing up a new budget
When you’re putting together a budget on a lower income, it’s just like drawing up any other budget – you need to start by writing down your monthly income and expenses. It will be easier than starting from scratch because you’ll be able to work from your original budget – just with a lower income.
Once you’ve changed your income on your budget plan, you need to take a look at where you can make up the shortfall by cutting back on spending. When you’re earning less, you’ll usually start by cutting what you were spending on any luxuries.
For example, let’s say you were earning £1,000 a month but you’re now earning £700. That means you’ve got to cut back on £300 somewhere in your budget to keep things in balance. If you’re currently spending £100 a month on takeaways, you might look to reduce this to £50. Or maybe you’re spending £80 on clothes? Would you realistically be able to spend £40?
It’s just about taking the time to go through your budget and seeing where you could make some savings. You don’t have to cut back in every area and you don’t have to stop treating yourself altogether – you just need to find a balance.
thinkmoney Current Account
If your income’s gone down, one thing that you might want to consider to help with your budgeting is the thinkmoney Current Account. It works like a bank account could be really helpful for managing your money.
When you’re earning less, it can be difficult to see how much money you’ve actually got left to spend on yourself – and how much should be kept aside to cover the bills. The thinkmoney Current Account helps you ring fence the money for your regular bills in a separate Salaries account, so you can’t accidentally spend it. All of the money you’ve got left for spending is then moved onto your Card account.
The thinkmoney Current Account costs £14.50 per month or £21.25 for joint accounts, and you can find out more info about it here.