Budgeting if your income has reduced

Coronavirus has brought a lot of uncertainty to our lives, and many people are having to adjust to a fall in income, either because their work has reduced, or they have been made redundant.

Latest figures from the Office for National Statistics (ONS) show sharp increases in the unemployment rate between September to November 2020. Our own analysis of these figures found that there are currently 407,000 unemployed over-50s in the UK, making up one in four of all unemployed people. With many in this age group already having to juggle new challenges such as home-schooling and social isolation, no one wants to deal with the added pressure of having to worry about making ends meet.

While it’s easy to feel overwhelmed, it’s important to take those first few steps to help you get back in control, so you know where you stand and can make a plan to move forward. Below are some useful tips to help manage your budget and handle a fall in income.

Make a list of your essential outgoings

Forget any extra costs for now and start by making a list of your essential monthly outgoings, namely the bills that could affect the roof over your head if you don’t pay them. These include; things like your mortgage or rent, council tax, and utility bills. You must also work out how much you need to cover other costs such as insurance, food and clothing. Prioritising these expenses first within your budget can help reduce money-related stress.

For further help working out your finances, there are free resources available like the Money Advice Service budget planner, or Citizens Advice budgeting tool.

If you think keeping to a strict budget is going to be an issue for you, it might be an idea to set up a separate account dedicated to your essential outgoings. Separating this money from the rest of your income can help you fight the temptation to use it for other non-essential costs.. You should be able to find advice on how to handle accounts online via your bank’s website, or by calling its customer service helpline.

Highlight areas where you could make cut backs

Once you have written down your essential outgoings, it’s time to start identifying some of the areas you could cut back on. While the good news is that lockdown may have naturally reduced your non-essential outgoings such as eating out and retail shopping, you’ll likely be able to find a few more areas you could save on. This might mean putting things like magazine or music and entertainment subscriptions on temporary hold, or something as simple as removing luxury or non-essential items from your weekly shopping list.

Ask yourself, for example, whether you could swap pricey brands in your weekly shop for the supermarkets own brands, or even homemade alternatives? Are you currently on the best deal for your mobile phone and internet network? More often than not, if you’re out of contract on your mobile phone or broadband – you will be overpaying. If you’re not sure, you can compare mobile phone and sim-only deals using our Mobile Phone comparison tool or find the best deals on home phone and broadband in your local area here.

Could you reduce the number of cars you have, switch to a cheaper model, or perhaps – if your lifestyle allows – trade it in entirely for a bike? After all, many of us aren’t travelling nearly as much these days. Learn more about some of the ways you might be able to reduce your travel costs in our article Eight ways to save on car and travel costs.

While cutting back on certain areas may be hard, in other cases this exercise may help you identify new habits that you’d like to maintain, for example food shop patterns that can make a huge difference to your weekly shopping bills. For example, making a clear food menu plan each week and shopping list in advance can help you stick to a budget and cut back on unnecessary expenses. You’re much more likely to spend less if you go shopping with a clear idea of what you will be buying instead of deciding as you go along.

Think about the products you usually go for and consider whether these could be replaced with supermarket own brands. Studies have shown these can have a significant impact on reducing shopping bills. According to research by website Love Money, shoppers could shave around £10 off their weekly shop without having to compromise on ingredients or quality. For example, opting for supermarket own porridge oats over big brands could save shoppers up to £3.25 per kilo. Spread those weekly cut backs over a month, or a year, and you could end up saving a significant amount of money. Learn more about ways you might be able to reduce the amount you spend on food here.

To complement your new shopping habits you could consider purchasing one of the many recipe books available that are specifically tailored to cooking on a budget, such as those from Eat Well For Less collection available here on Amazon. Little lifestyle changes like these can be a great help when navigating a fall in income.

You can explore other ways to reduce your outgoings in our article How to save money – 17 ways to cut costs.

If you have an irregular income

A varying or unreliable income can make budgeting difficult and it can be tempting to plan ahead on the presumption that each month will be a good one. However, to avoid overspending or running into issues if you have a worse month, it is safest to budget based on your lowest monthly income. This way you’ll always be prepared to cover essential costs each and can enjoy an extra boost of income if you have a better month.

Seasonal income changes may be particularly noticeable if you are self-employed as different companies fare differently throughout different periods. For example, while some industries such as retail may thrive during the Christmas period, it can be a difficult time for others with less income coming in.

On a more personal note, it is also useful to make note of when your outgoings may naturally increase throughout the year, factoring in Christmas, birthdays, and dates when annual bills such as car insurance are due, so that you can plan your expenses in advance. Sign up for our Free Insurance Renewal Reminder and we’ll email you when you should start looking for a new deal.

If you’re still struggling...

If, after making a budget, you find your essential outgoings still exceed your income, look at ways you might be able to boost the amount you have coming in each month, or whether you might be able to pause some of your outgoings while you get back on track.

Check if you qualify for any financial support If your income has fallen, you may be eligible for financial help from the government. To find out which benefits you may be entitled to, and how to claim, visit the government’s benefits calculator.

For example, you may be eligible to apply for ‘new style’ Jobseekers Allowance to help cover costs if you are out of work and actively searching for a job. Applications for contribution-based or income-based Jobseeker’s Allowance are no longer available, however if you previously applied you’ll continue to receive payments until your claim ends.

Jobseeker’s Allowance payments are usually made fortnightly, and you could receive up to £74.35 a week.

If you have a disability or suffer from a health condition that affects the amount of work you can do, you may be able to apply for Employment and Support Allowance. This allowance may also be available to those unable to work due to circumstances tied to coronavirus such as self-isolation or shielding.

From this allowance, you will receive money to cover living costs and help get back into work if you are able to.

To find out whether you’re eligible visit the GOV.uk website, or you could read our article Unemployment benefits: what are you entitled to?

You might also qualify for Universal Credit, a benefit paid to those who are unable to work or need some help meeting living costs due to being on a low income. Find out if you’re eligible for Universal Credit here.

The amount of Universal Credit you’ll receive will be calculated based on your individual circumstances. For example if you are single and aged 25 or above you can claim a maximum amount of £408.89 a month, while if you’re a couple aged 25 or over, the maximum is £594.04 a month.

Bear in mind that different earning patterns can affect your Universal Credit payments, especially if you are paid on a more frequent basis than once a month.Let’s take a look at some examples:

  • If you get paid every four weeks, you may receive two pay cheques in the same month.
  • If you are paid every two weeks, there will be some months where you are paid three times.
  • And, if you are paid on a weekly basis, you could receive pay up to five times in one month.

This could also happen if you are paid monthly and receive an early payment because the payday falls on a weekend or a public holiday. Furthermore, if your payday and assessment date are close together it could mean you earn two full pay cheques within the same assessment period. If this happens, you might exceed the earnings threshold and receive no Universal Credit payment, or a reduced payment, for the following month.

If you live in Scotland or Northern Ireland and receive payments fortnightly, both payments will be equally reduced if you are still eligible for Universal Credit. You won’t need to make a new claim but you will need to reapply for Universal Credit by logging into your account and confirming your details to start the claim again. A useful tip is to look out for months this might happen and plan in advance. You can learn more about how Universal Credit works in our article Everything you need to know about Universal Credit.

Get help with your bills

Don’t suffer in silence if you can’t pay your bills. Talk to the companies you owe money to as soon as possible and let them know you’re having problems paying. They might be able to arrange for you to pause your payments for a bit, or make more affordable repayments each month temporarily.

For example, mortgage payment holidays allow people to take a break from making monthly mortgage payments, or to make reduced payments instead. Mortgage payment holidays are available up to three months at a time, for a maximum of six months overall, and you’ll need to apply before 31 March 2021. You can find out more about ways to get help with your bills here.

Have you recently made a budget because your income has fallen and do you have any other tips to share? If so, we’d be interested in hearing from you. You can join the money conversation on the Rest Less Community forum or leave a comment below.

Links with an * by them are affiliate links which help Rest Less stay free to use as they can result in a payment or benefit to us. You can read more on how we make money here.

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