PRACTISE living on the expected lower income while you still have the higher income.
This allows you to see what changes you will have to make - and at the same time, allows you to put the extra money into a reserve fund to help you cope after your income drops.
The sooner you start living on your projected lower income, the easier the transition will be, and the more money you will have in your reserve fund.
If you don't plan ahead - and sometimes you can't - you have two choices: 1. Borrow to make up the shortfall. Just make sure you have set up the loan or line of credit ahead of time. Consider this approach only if you expect to return to your former income level reasonably soon and will then be able to pay down the debt. Otherwise, you could face bankruptcy.
2. Be prepared to make lifestyle changes, especially if your lower income situation is likely to persist. This could involve many small spending cuts or more major steps like selling a second car or even moving into less expensive housing.
If you expect to have problems with debt repayments after your income goes down, see if you can rearrange the debts to lower your payments - ideally through borrowing at today's relatively low rates to pay off the most expensive debts.
Contact your creditors to see what arrangements you can make to lower or possibly defer your weekly or monthly payments, although this is likely to increase the total cost of your loan.
On the other hand, if you are fortunate enough to have your income increase, consider continuing to live at the pre-increase level and using the extra after-tax income to pay down debt faster or build investments.
Before your income drops:
? Practise living on less
? Cut spending, save surplus
? Be careful if you borrow
Learning to live on less is easiest while you are still living on more. This typically applies:
? While a spouse takes time off work to have a child.
? After losing a job or taking a lower-paid position.
? Temporarily during illness or permanently after retirement.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally - email [email protected].
