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How to Transition to Living on Last Month’s Income When You’re Paying Down Debt

July 13, 2017
AUTHOR: Emilie
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When creating and working with a budget, most people work with their expected income for the month instead of what they already have in the bank. You know when you’ll get paid and you know (or at least have a good idea) how much will be in that paycheck so you can budget your bills based on that information.

But when working towards creating financial security for yourself, it’s so much better to budget based on what you already have, not what you expect to have. Living on what you made last month, already having what you need in the bank, is much less stressful than waiting for payday to arrive then paying all the bills that are either due immediately or already past due.

This is a difficult transition to make, especially if you have a lot of debt that you’re working on paying down. It may feel like you’ll never be able to live like this. But you can. It won’t be easy and it will take some time and discipline to get there, but it will be well worth the financial security and reduced stress when you do. Here’s how to make the transition:

In order to make the full transition, you’ll need at least a month’s worth of income in savings. If you don’t already have a comfortable emergency fund that you can work with, it’s time to start adding that to your monthly budget. You don’t have to budget it all at once or even over a short period like 2-3 months. Instead, work with numbers you’re comfortable with. Maybe it’s just $50-$100 a month. Remember, getting to your goal is a sprint not a race, take your time.

Since you’re also paying down debt, make sure you keep your debt payments in your budget as well and keep working towards those goals. If the debt is less than a few hundred dollars, try to pay those off completely. The more you can pay off, the easier it will be on your budget.

If your debt is significant and your payments are large, too big to give you any breathing room for saving, try to renegotiate them. Contact your creditors to see if you qualify for a reduced interest rate or if it’s possible to either skip a few payments (they’ll add these on to the end of your loan term) or extend your loan term. Most companies will be happy to work with you. (Tip: if the person you’re dealing with is not willing to work with you, hang up and call back later. Each representative is different, some will gladly help and others won’t.)

Now that you’ve worked on lowering your debt by paying off small loans, you’ve renegotiated your higher debt to lower monthly payments, and you’ve set up a little bit of money to go to savings every month so you can start getting a month’s income in reserve, it’s time to look at your other bills. Look for ways you can lower your monthly spend, even if just for a few months while you’re building your reserve. Can you cancel your premium cable package? Put a hold on your subscription boxes? Work out at home instead of the gym? Eat out once a week instead of four times? Look for ways you can cut back so that you can start putting that money towards paying down your debt and building a month’s worth of pay in your savings. Every little bit helps.

The process won’t happen in just one month or even two, be patient with yourself but keep moving forward. When you’re getting by on last month’s income and have money in the bank, you’ll be glad you did.

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Emilie is a data engineer by day and lifestyle blogger by night. A Jersey girl at heart, she is currently living in her fifth home in three years, Savannah, GA with her college sweetheart. She’s learned the hard way that home is wherever the Army sends them. She enjoys eating food, cuddling with her dog, and binge watching HGTV.