Whether you’ve just landed a big promotion or you’re out of work, it’s often a struggle to adjust to a seismic shift in your income. Here are some simple tips to help you stay the course when your financial situation changes:Do a budgetary check-up
If you’ve recently lost a chunk of your income, financial education consultant Manisha Thakor suggests performing a review of your expenses. This involves going through your spending habits with a fine-toothed comb to see what could be trimmed. For instance, do you have a premium subscription to a game you rarely play? How about a monthly payment for a streaming service your kids hardly ever use during the school year? Is there a forgotten gym membership pulling payments from your credit card? Rooting out these financial drains can result in more funds for your essentials, like food and utilities.
Dining habits
We all need to eat, but if you’re accustomed to dining out, you may find yourself struggling to make ends meet if your income has dropped. Personal finance author Valerie Rind suggests you can still enjoy convenient and delicious meals, even if your current budget doesn’t have much room for your favorite restaurants. She suggests turning to a crockpot for easy cooking, skipping premium groceries for less expensive options, and checking out social media for practical, budget-friendly recipes.
Evaluate your wants and needs
When your income changes, Investopedia author Jean Folger suggests keeping a clear head about what you really need and what you simply want. If times are tight, you may want to cut back on the number of movies you see in theaters, how many brand-new clothes you buy, and the kind of vacations your family plans to take. This doesn’t mean putting fun on the backburner — instead, your family could check out media from the library, take a vacation to a nearby lake instead of a water park, or purchase at a consignment shop for items your children will quickly outgrow.
Resist the urge to “keep up with the Joneses”
Folger explains ignoring the urge to flex your finances can help you make sound financial decisions. For instance, if your new job nets you an extra $1,000 per month, you may be tempted to put that money towards a fancier wardrobe or a more luxurious car, even if your current vehicle serves its function. While splurging on fun experiences and luxury items isn’t out of the question, Folger encourages you to look at the big picture before you make a financial commitment. Consider applying some of that additional income to your retirement account or emergency fund. With some of your newfound income secured in your savings, you’ll be better equipped to make smarter financial decisions.
And if your income has dropped, understand it’s okay to let go of a few status signifiers to make ends meet. That could mean selling your vehicle for a more fuel-efficient model, downsizing to a smaller apartment, choosing a more affordable cell plan, or selling a boat, motorcycle, or recreational vehicle you hardly ever use.
For more tips on making smart financial decisions, consider consulting with a financial advisor.