There are many ways that the current situation may have affected your finances. You could have been furloughed; you may have had your working hours reduced; you may have been made redundant; you may be unable to work due to illness; or you may be taking time off work to care for a loved one.
To support you through this, we’ve put together 10 steps for managing a reduced income.
1. Check whether you are being paid correctly
Whether you’re out of work, reduced your hours, been furloughed or are unable to work due to illness, it’s important to make sure you are receiving the right amount of money each month.
You can also check what benefits you might be entitled to using the benefits calculator created by Citizen’s Advice.
2. Understand your options for managing debts and repayments
As of 9 April 2020, the Financial Conduct Authority require creditors to further support people with overdrafts, loans and credit cards.
The support includes:
- Interest-free overdrafts of up to £500 for up to three months
- Mortgage holidays and other payment holidays on loans, credit cards, store cards and catalogue accounts for up to three months
- Ensuring customer credit ratings won’t be affected if they use a payment holiday or an interest-free overdraft
3. Contact your creditors
Most creditors are willing to be flexible and supportive to anyone who’s affected by coronavirus, to try and prevent them falling into financial difficulty. It’s important that you get in touch with them as soon as you can.
4. Understand your debts
To take control of your finances, you need to know how much debt you have and what you need to focus on paying first.
It’s important to know exactly how many debts you have, what your debts are, and the balances owed on each one, including interest.
- Search through your most recent statements
- Check your credit report
- Prioritise the most urgent bills first. Click here more information on prioritising your debts.
5. Understand your income
Add together your income for each month. Make sure you include everything, including wages, benefits and pensions.
If you receive any income in weekly, bi-weekly or 4-weekly instalments you will need to turn this into monthly amounts to include in your monthly income.
To calculate the monthly amount, take the weekly amount, multiply the figure by 52 and then divide by 12.
6. Understand your outgoings
Write down everything you spend money on each month in order to get a clear idea of what you are spending money on.
Next it is important to consider anything you spend money on once a year or less, such as insurance, repair bills and Christmas. You will need to turn this into a monthly amount that you know to set aside until the bill is due.
7. Create a budget
Now that you understand your income and your outgoings, it is time to make a budget.
Make sure you cover all essential spending and try to identify where you can make any savings.
8. Make choices that can save money
When you listed all your outgoings, you might have found areas in which you could save money each month but there may be still be some changes you could make in order to save more.
- Plan your meals each week and cook them in batches
- Use up toiletries before buying new ones
- Use a bar of soap instead of gels, as they last longer
- Use only the advised amount of toothpaste and shampoo
- Use price comparison websites for utilities and insurance, instead of auto renewing
- Turn off appliances (excluding fridges and freezers) at night
- Hang up clothes to dry wherever possible, rather than using a tumble dryer
- Check to see if you can save money on your phone or internet contract
9. Get debt help
If you’re still worried about your finances after making a budget, the debt charity Step Change can help. Click here to get free debt advice.
10. Finally, it’s up to you to take control of your future
Stick to your budget
Make long term goals
Learn from the challenges you’ve already faced
References – Clearscore, The Money Advice Service and the Step Change Debt Charity