How To Deal With Loss of Income

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A sudden loss or reduction in income can be a scary thing.

Whether that loss or reduction is due to external factors such as business closures and retrenchment, massive structural changes in the consumer markets, changes in economic circumstances locally or globally… 

Whether is due to individual factors such as health issues, a birth of a child, having to look after aging parents…

Whatever the reason, there are many, many, many situations which could result in the income you’ve gotten used to flowing into your life suddenly reducing significantly or stopping altogether. 

Right now, this is the reality many many people are facing, and not having a plan or knowing how to deal with this can have a devastating impact on you emotionally, physically, and mostly on your short term AND long term financial well-being. 

Having an income reduction plan is a vital element of your financial wellbeing plan and that’s what this video is all about…

Here are the things you should put in place to ensure that you have resilience and a buffer in place in the event that you have a big loss of inflow.

Income Loss Resilience Step #1 – Emergency Fund

You must have an emergency fund in place. 

For your emergency fund you need a stash of cash of about US$1,000, £800; *00 Euro etc.

This needs to be put away as cash or in a very accessible account that you can access when (not if) and emergency comes along.

This is your very first line of defence, but if the income taps have been turned off or significantly turned down and less income is coming in you need the next layer of income loss protection, which is… 

Income Loss Resilience Step #2 – Basic Living Need Safety Net

You need a 3 to 9 months’ basic survival living needs cash safety net. 

What are your basic survival needs? 

Your survival needs are NOT your current lifestyle costs. 

You need to get really clear on the difference between needs and wants.

Look at your expenses and ask yourself, “What are the costs that I must, must keep paying in order to survive until I can create or access other forms of income?” 

Survival includes:

  • Shelter
  • Food (this is survival NOT gourmet)
  • Access to opportunity so for most people this would include internet access and transport.

Work out what the minimum amount is that you can survive on per month. This is your basic living needs price tag. Then build up a savings account to an amount that equals between 3 to 9 months of that monthly survival amount. 

Why 3 to 9 months? 

Some people naturally feel more optimistic or more resilient about their ability to generate income and for those people a smaller 3 month safety net may feel adequate. This may also be the case where there are already multiple streams of income coming into the household – either from different people earning or income streams coming from assets. 

Others will feel more vulnerable or feel they need a safety net that covers them for a longer time, in order to feel safe.  Perhaps you live on your own, perhaps you are the primary income generator and there’s little or no other financial support in your life. In this case, you would choose a longer safety net period up to 9 months of your basic survival living needs. 

Please don’t build too big a cash safety net. You don’t want too much money just sitting around twiddling it’s thumbs waiting for an emergency.

Please also don’t set your cash safety net amount for anything LESS than three months of your basic survival living needs because then you’re just being reckless with your own wealthy life and you don’t want that!

The whole point of your safety net is to catch you and give you some financial stability while you reorganise your life and sort out new sources of income to flow into your life. 

Income Loss Resilience Step #3 – Income Protection Insurance

The third thing is to consider as part of your income loss resilience is income protection insurance. 

This is also a way to create your safety net quicker than only through savings. 

If you’re an income earner, you can get income protection insurance that will kick in if you’re not able to earn after a period of time. 

Here’s a wealthy hack. 

Voluntarily choose a longer period before the income protection insurance starts to pay out. 

The longer you’re prepared to self-insure, so in other words, the longer the period of time it takes before the insurance payouts start, the lower your premiums will be. 

So you might set up a situation where you “self-insure” by building up two months’ of your own survival cash safety net and then you put income protection in beyond the two months. 

This is really going to keep those insurance premiums low but still gives you the comfort and assurance knowing that if something were to happen to your income, you’ll be covered. 

Income Loss Resilience Step #4 – Slash Your Outgoings

As soon as, or preferably before, your income gets curtailed or cut back, you need to slash back your expenses. 

I prefer to call this, learning how to be a wealthy spender and ensuring you get massive value from your spending. Read this article on How to Be a Wealthy Spender.

As soon as you have an inkling that income might be reducing, go radical!  

Claim Your Freedom First! 

Go through your expenses, go through the last 12 months of outflow and see where your money has really been going.

Look at regular installment / subscription type payments and get rid of those you don’t use and don’t get massive value from.

Look at once-off payments, annual auto-renewals, and memberships and remove any you don’t get massive value from.

See where you’ve been spending your money and slash, slash, slash back. 

Lighten your load. 

I see so many people who try and maintain a certain lifestyle with massive outflows, most of which are completely unconscious and add no value to their lives anyway, despite a change in income and this holding on behaviour causing them massive long term damage. 

Most people operate their financial lives with what I call a breakeven money flow. Read this article to Understand the Different Money Flow Patterns.

When you lighten your load – please don’t treat this as deprivation. 

When you lighten your load you are choosing you, you are being incredibly loving to yourself and those you love by making sure you don’t get into a devastating financial position. 

Income Loss Resilience Step #5 – Freeze Your Debt

If you have any kind of debt – a mortgage, overdrafts, credit cards, store cards, car loans, etc… let your lenders know that your financial situation has changed. 

DO NOT WAIT!

Write (email) to each lender – so you have a “paper trail” – and call them and get a reference number for your call.

Tell them that you might be entering into a difficult financial position and you may not be able to keep up your repayments. 

Be upfront and proactive. Tell them you need to renegotiate the interest rates, potentially pause the repayment, and the repayment terms. Ask them to freeze your interest accumulation.

Go here to download a Debt Reduction Negotiation Script for these calls.

If you don’t speak to them and just start defaulting on your debt repayments, it’s going to massively impact not only your credit score but also the choices you have downstream. 

The sooner you speak up, the better. 

Income Loss Resilience Step #6 – Connect and Communicate

Finally, let your friends and your family and your peer group know what is going on in your life. 

I’ve heard so many horror stories of people slipping into shame and isolating in times of financial turmoil, which just makes things so much worse.

People writing to me where they felt ashamed. They felt that they had to be the martyr or the strong one. They didn’t tell their kids what was going on. 

I had a situation recently where a woman was literally two weeks away from her and her family being evicted from the home that they’d lived in and rented for over 12 years because she was seven months in arrears on the rent but she hadn’t told anyone. 

She hadn’t told her kids who were all young adults, who could have supported her and helped if she had just spoken up, but she felt so much shame around this that she got herself deeper and deeper into a worse and worse financial hole.

Claim back your power and the truth that you are already worthy beyond measure.

This is how you’re going to ride through and thrive in a situation where your income might reduce. 

In the comments below, I’d love you to share one of your resilient strategies. 

  • What do you have in place to make sure that if or when the income reduces into your life, you are protected and can bounce back from that situation and not get into a deep, financially difficult hole? 

Remember, your wealth is created by little baby steps consistently taken, by you giving money great leadership and by letting it support and serve you so you can get on and live your rich, juicy, amazing life that you’re here to live.

Big love in these turbulent times

Ann

P.S If you haven’t yet done the 30 Day Squeeze The juice Challenge to lighten your load and get more value from the money in your life – then let’s make that happen now.

I am giving everyone who needs it and wants it, the 30 day Squeeze the Juice Challenge FREE

Go here and get SQUEEZING.

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5 Comments

  • Romana says:

    Great advice Ann! I have a safely net for 4 or 5 years. However, it’s savings for a house, it’s not ment to live on this money.

    My husband and I moved from the US to Australia a month ago. We have no jobs. We didn’t anticipate Coronavirus crisis.

    I always thought that income protection insurance is BS. Reading your blog made me think 🤔 about it.

  • Michael Walker says:

    Great Advice Ann need to work on 3-6 months Basic Living Need Safety Net. Always good to watch these videos and keep me on track. Thanks.

  • Sharmaine Williams says:

    I love 💕 this.

  • Busisiwe says:

    I’m in south africa though ….in most cases when I order staff I dont get it I’m I’m wondering how am i going to go about this one I’m very interested in this programm

    • Ann Wilson says:

      Busisiswe – all the training is digital – so as long as you have internet and an email address you will receive all the training.

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