• Britannia
  • Financial protection for families
  • Financial protection for wage & salary earners

Expecting your income to drop? Get your finances ready for it

If you’re like most people, you’re probably pretty used to the amount of money that you earn.

It’s probably a lot more now than you earnt when you first started out, but somehow your spending has increased, year by year, to match the increases in your salary or business earnings.

That means it can be very hard to stomach a significant drop in income.

But people have to deal with this scenario all the time – if one partner takes time off work to look after children or other family members, for example, or if you decide that you want to quit work to study, travel or pursue some other endeavour.

Here are a few things to think about if you’re expecting a big drop in income.

Plan ahead

Waiting until the last minute to discover what you’ll have to live on is unnecessary stress, so try to get a clear idea as soon as you can of what your new budget will be.

Draw up a budget so you can see clearly what will be coming in and what you’ll need to pay for from that. Depending on the reasons for the drop in your income, you may be able to supplement it with other means – like Government support, savings or investments.

Work to your budget

Take your new budget for a test drive. Before your income actually drops, have a go at living as though it has been at the lower level for a while. This helps you to identify areas where there might be problems, before the situation becomes critical.

Build up an emergency fund

Whether or not you are expecting your income to drop, creating a rainy-day fund is a good idea as it can help build your financial resilience. Of course, this becomes even more important if you know that your income will soon go down.

One of the things that really knocks low-income earners is a big, unexpected expense. You can make the experience of earning less a lot less stressful if you set up an emergency fund beforehand that can be called upon if required to bail you out. How much, you ask? Ideally, this should be equal to a few months’ of your current income.

Trim expenses

Work through your outgoings to work out what’s absolutely necessary and what has just become something that feels important because you’re used to it. You may find you can get rid of a lot of spending without even really missing it.

However, consider keeping things such as your KiwiSaver contributions going so that you don’t reduce your options later on.

Talk to your lender or mortgage adviser

If you have debt or other obligations, get in touch with your lender or mortgage adviser.

If you’re looking at a short-term reduction in your income, you may be able to restructure your loans so that you don’t make any or part of the payments over that period. This should be done carefully though, as it can mean you’ll pay more interest overall.

If the change is more permanent and you’re worried about meeting your obligations, it’s also important to have an open and honest conversation with your adviser and lender about what’s happening.

We can help

Are your financial circumstances changing? We’d love to help make it easier for you to navigate. Get in touch today to discuss what options are available to you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.