Whether it's a job loss or another disruption in income or expenses, navigating an unexpected income loss can feel daunting. However, with a well-thought-out financial plan, you can regain control, find stability and gain some peace of mind.
1. Assess your financial situation
To start, list all sources of income you currently have and gather a full picture of your financial status by noting your savings, debt and essential monthly expenses.
A few other items to keep in mind:
If you've experienced a job loss, consider applying for unemployment benefits as soon as possible. These benefits will be able to provide temporary assistance during this time.
Review your health insurance policy to understand the extent of coverage it provides. You may need to explore other options like The Consolidated Omnibus Budget Reconciliation Act (COBRA).
Identify immediate priorities by tracking outstanding debts and their monthly payments and adjust your expenses accordingly.
Being honest about your financial standing enables you to lay the groundwork for effective planning, helping to mitigate the crisis through necessary steps.
2. Focus on the necessities
Your situation at this point can be overwhelming, but it's important to remember your needs are more important than your wants. Start by creating a new budget that reflects your current financial situation. This is an opportunity to adjust your short and long-term financial goals. These goals can help guide your budgeting decisions and help you to remain focused on your priorities. Now, you can evaluate your cash flow by comparing your total income to your total expenses. Allocate your available funds to cover essential items first, like mortgage, utilities and groceries. This may mean you'll need to go over your bank statements from the previous months to identify non-essential spending and explore ways to reduce other costs until you get back on track.
When facing financial challenges, it's important to take control of your finances through strategic actions. Consider consolidating or refinancing your debt to simplify payments or reduce interest rates. You may think about refinancing your mortgage at this time. Simultaneously, reach out to your lenders and service providers to explore possible relief options, negotiate better terms and discuss flexible payment plans or extensions. Communicating with your creditors is important if you're struggling to meet debt obligations. Be sincere and honest about your circumstances may convince the lender to work with you. By proactively managing your debt and communicating with creditors, you can work towards stabilizing your situation.
4. Build an emergency fund
If you don't have an emergency fund, begin by setting aside a small portion of your income each month, even if it's just a few dollars. Every little bit helps, and it builds a habit of saving. Consider setting up automatic transfers to a separate savings account to ensure consistent contributions to your emergency fund.