title for how to deal with a financial emergency step by step

How to deal with a financial emergency step by step: dealing with income loss

Life is predictably unpredictable. When a financial emergency strikes it might seem like the world is crumbling around you, but there will be a way that it can be solved. In this article, I’ll walk you through step-by-step how to deal with a financial emergency by understanding the facts and helping you take the actions needed to improve your finances so you can weather the storm.

For me, one of the best ways to reduce stress and anxiety is to make a plan. This way you are proactively improving your ability to deal with the emergency.

A financial emergency can take many shapes and forms. Getting landed with an unexpected car repair bill could sound like an inconvenience to many, but when you need that car to get to work then suddenly this has the potential for a financial crisis.

Alternatively, most people will recognise that losing your main income such as your job has the potential to be a financial emergency, no matter how well prepared you are.

In this article I’ll discuss how to deal with a loss of income, but if you want help dealing with an unexpected expense then check this article here.

Take stock

Understanding the facts will help you devise a plan.

When will it start to have an impact?

Knowing how much time you have until it starts to have an impact is important as you know how quick your response will need to be.

If your loss of income is due to a redundancy where they offer you 3 months’ notice, you know that you have a 3 month buffer on top of any emergency savings to replace that income and may decide that no further steps are needed.

Whereas if the income loss is immediate, you will need to take more active steps to improve your situation and buy yourself more time.

Size the emergency

Understanding the size of the impact on your income will help you plan the scale of your response.

Sizing the impact from a job or income loss is normally quite simple. Take the after-tax payment you normally receive at payday or in a standard month (if it is from a job or estimate it if from self-employed earnings).

The hard part comes from estimating the amount of time it will take to replace that income.

How to deal with a loss of income

Assess your current situation

The aim is to have a plan for where your money is going to go if you can’t afford all of your expenses (prioritising them), and simultaneously reducing your expenses.

This will help to improve your ability to navigate the financial emergency. Fewer expenses means the longer your emergency funds/savings can support you, or the lower level of income you need to replace in order to return to a more secure financial footing.

Prioritise your expenses

Not all of your expenses are created equal. If you can’t afford all of your expenses due to the emergency, then you need to prioritise which bills get paid first.

Any bills relating to food and shelter are the most important, so make sure you rent/mortgage payments and your basic grocery shop is prioritised above all else. Even though it is inconvenient having your Sky package be cut off, you can find other ways to entertain yourself easier than you can find a new place to live.

Next are the utilities bills, ensuring your electricity and heating continue to run, and council tax.

Then prioritise any travel costs that allow you to earn an income – such as taking a train/bus into work.

If you find that you are having to prioritise in this way and can’t pay for the luxuries such as going out to eat and Netflix subscriptions, remember this is only a short-term restriction until you weather the financial emergency and isn’t designed to be a sustainable lifestyle, so don’t be too precious around dropping some of these luxuries as you can turn them back on when you’re in a better financial position.

Now we know which to pay first, work to reduce your expenses across the board. This will make any money you do have go further, and make the job of replacing your income easier as you only need to reach this level (rather than a full replacement of your lost income).

Renegotiate your bills

A quick and easy way to get a shot in the arm for your finances is to save money on your existing bills. It also doesn’t require any changes to your lifestyle.

Compare prices on gas/electricity and insurance costs using price comparison websites such as MoneySuperMarket and GoCompare:

Alternatively, try calling your current energy suppliers and explaining your situation. They may either:

  1. Be able to put you on a better tariff (like the ones you found in your comparison shops)
  2. Be able to put in place better payment plans to reduce your monthly expenses to something you can afford whilst you’re in this period of uncertainty

It is not only in their interest, but your energy supplier has to help you come to a solution. They deal with these queries all the time, so don’t feel like you’re going to be judged or discriminated against.

If you are struggling to pay for your gas and electricity bills or you get into debt, contact your energy supplier as soon as you can. They must work with you to agree a payment plan you can afford.

Depending on your circumstances, you may be eligible for extra help with your energy bills or services.

Quote from Ofgem, the energy regulator

Cut back on lifestyle costs

If you’ve been living comfortably for the last few years and have had no reason to track and analyse your spending, you are likely to make a large chunk of savings from this. However, if before this emergency things were tight already, it is unlikely you’re going to find further savings. If this is you then don’t worry as there are other areas to save on!

Look at your last month’s expenses and get brutal with any non-essential costs. Remember, this is an emergency and once you are on a more secure financial footing you can start to introduce these services back into your life.

The areas to look for ways to cut:

  • Repeating transactions such as;
    • Netflix/Amazon Prime/ other streaming channels
    • Magazine/news subscriptions
    • TV packages (check your contract and call up just like your utilities providers to see if they can help you through your situation)
    • Broadband/landline packages (can you downgrade to a smaller/cheaper plan?)
    • Gym subscription
  • Lifestyle spending such as;
    • Going out to eat
    • Entertainment such as cinema, pubs, sports etc
    • Non-work travel

The more you can reduce these expenses, the further your savings/emergency fund will go or the fewer expenses you need to cover with any replacement income (making it easier to achieve).

Speak to your lenders

The same applies to your lenders as for your energy suppliers.

It’s probably the last thing you want to do, but giving us a call won’t make anything worse. We won’t spring any surprises on you; our advisers are here to listen, understand and agree a solution with you – not demand payments you can’t afford.


It is ultimately in their interest to work with you to come to a solution, as they want to keep you in a good position to be able to repay their loan/credit card. This means they are normally able to support you if you explain your situation to them.

It is important to note that it is better to do this proactively rather than waiting until you can’t pay the minimum payments.

Work out how much you need to get through the emergency

This is where it all comes together.

Now do two things:

  1. Add up your total expected monthly outgoings now that you have cut back on your expenses and renegotiated with your suppliers and lenders
  2. Add up only the categories that are deemed “essential” such as housing, utilities, council tax, food, travel and debt repayment

Now, you have a lower limit of monthly income you need to achieve in order to keep a roof over your head, heating on and food on the table (the “essential” costs in #2 above). And you also have the ideal amount you need to pay for all of your outgoings.

For example, my essential expenses could be £1,000 per month, but my total expenses come to £1,500 per month. I now know that I need a minimum of £1,000 a month to stay afloat, but £1,500 is ideal.

Next, I need to find money to pay for this. This will allow you to work out how long you have to replace your income.

Find the money

This makes it sound so easy. Of course, I know it is not that simple, but exploring some of these will help replace some income in the short-term to cover your expenses and buy you time to replace your income fully.

They are in the order that I would approach this problem.

Emergency fund/savings

If you have any emergency funds saved up, now is the time to use them.

In my example above, if I have a £5,000 emergency fund pot saved up, then I know that I have just over 3 months before I need to have replaced the income if I meet all of my expenses (£5,000 divided by the £1,500 monthly total expenses = 3.33). This will last longer if I prioritised my essential expenses and allowed my other services to be cut off.

If you have been saving for short-term financial goals, you may need to consider using these too. Even though this may be psychologically tough, it will be cheaper than incurring interest by borrowing, and you can always start saving again when your income has recovered.


I always advocate having an emergency fund built up before you start investing, so if this is the case, exhaust your emergency fund before turning to cashing out your investments.

The advantage of cashing out your investments are that you aren’t incurring interest costs by taking on any more debt, however there are significant drawbacks with this approach because your investments may be currently in a down market and taking your money out actually crystallises that loss (whereas they would have recovered in time). You may also be stung with fees and penalties to cash out, as well as a slow process getting the physical cash.

This is all dependent on your particular investment setup, so always consult a professional adviser if in any doubt.

Earn more

Replacing any or part of your lost income will help alleviate the pressure on your emergency fund/ savings and buy you more time to replace your income in full.

Replace your income – bit of an obvious one but still worth saying. If you have lost your main income stream, the aim is to replace it as soon as you can. I’ll take off my Captain Obvious hat now.

Take on a second job – this could be in parallel to your job search to replace your lost income. It doesn’t need to be in the same field – even taking a weekend job in a cafe whilst you job hunt will ease the financial pressure. Once you replace your main job, you can of course leave your 2nd job.

Sell your things – having a clear-out and getting rid of your unused or unloved belongings on eBay or Gumtree can provide you with a decent one-off income without much work. However, this only lasts for as long as you can find stuff to sell in your house.


People are rightly nervous about borrowing, especially when borrowing to bridge a short-term income drop. However, used properly and within your means will not put you on a road to hardship and will allow you to get through this short-term emergency.

Some people may be in the fortunate position of borrowing from friends & family, which normally means no interest cost. If this is you, make sure you put the agreement in writing and agree on repayment amounts and dates. Even though it sounds formal and stuffy, making it clear like this is to make sure everyone has the same expectation and reduces the chances of it impacting your relationship.

Alternatively, if you have a healthy credit score you will have options such as credit cards and personal loans which will allow you to bridge the gap. Look for the cheapest credit you can, whilst being mindful of the type of credit that you need. A personal loan tends to be cheapest and will drop actual cash into your account that you can use to pay for bills and direct debits/standing orders, whereas a credit card can only be used for card transactions. I would recommend against ever taking out cash on a credit card because the costs are just too high.

Any additional borrowings that you take will eventually need to be repaid, and taking on extra debt will mean you will have to make higher monthly payments, so bear this in mind and don’t borrow beyond your means.

Any additional borrowings that you take will eventually need to be repaid, and taking on extra debt will mean you will have to make higher monthly payments, so bear this in mind and don’t borrow beyond your means.

If you have a poor credit score or banks won’t lend any further amounts to you, then try to avoid going for payday loans as these are intended for very short bridging periods (i.e bridging a week or two to your next payday) and as such are very expensive for longer periods. Search online for personal loans or credit cards that are designed for people with poor credit, but if you were already struggling to make the repayments before this emergency, then speak to one of the free debt advice lines available who will be able to help you work through your situation.

Take assistance when it is available

I’ve compiled a list of resources to help you based on your situation. As everyone’s situation is different, please contact a suitable professional as appropriate to help, especially if you are worried about your debt obligations.

Benefits eligibility (UK): https://www.gov.uk/benefits-calculators
Where to get free debt advice: https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator
Help if struggling to pay energy bills: https://www.citizensadvice.org.uk/consumer/energy/energy-supply/get-help-paying-your-bills/struggling-to-pay-your-energy-bills/
Help with credit card debt: https://www.citizensadvice.org.uk/debt-and-money/borrowing-money/credit-cards/if-youre-struggling-with-credit-card-debt

Preparing for a future emergency

Navigating your current emergency will no doubt give you things that you would do differently in the future. In order to protect yourself from future emergencies you should;

  • set yourself up an emergency fund and aim for 3-6 months’ worth of expenses
  • build yourself a monthly personal profit so you are living well within your means
  • pay down your debt when times are good so that you can access credit when you need it, and ultimately aim to be debt-free (excluding mortgage).
  • ask yourself a few worst-case “what-if” scenarios and understand whether you need any insurance to help manage your risk. Speak to an insurance broker or advisor who will help you work out what you need. It is a bit of a macabre subject, but one “what-if” would be; “what if I die, is my insurance coverage sufficient to support my dependents?”.


Even though dealing with financial emergencies are stressful, there is always a way out of the problem. By taking stock of your situation and putting in place some proactive actions, you can reduce the impact of the emergency and plan your way out of the situation. Help is available that you may not have considered, so don’t feel scared or ashamed to call up and ask for help, you are not the only one and you won’t be the last.

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