What Happens When Your Expenses are Higher Than Your Income?

When your expenses become higher than your income, you experience money stress, and you begin to worry about how to handle your expenses or make more money. You might even end up taking up loans and compounding your debts.

In the United States, close to half of Americans complain about their expenses being higher than their income or equal to their income. It makes them compound debt and experience income volatility. Are your expenses currently higher than your income, and you’re wondering what will happen? This article will tell you what happens when your expenses exceed your income.

READ MORE: How to Get Rid Of Student Loan Debt without Paying?

What happens when your expenses are higher than your income.

When the cost of your daily personal expenses begins to outweigh your monthly income, it is almost inevitable for you not to have a financial situation. Apart from that, you will feel the burden of meeting your needs. Here’s what happens;

1. Great money stress.

When you’re unable to meet your expenses, it becomes a financial burden. First, you’re worried about not keeping up with your lifestyle. Second, you’re unsure of what to do. Being stressed when your finances are too small can lead to anxiety.

You will feel financially incapacitated, and that’s not good for your mental health. When your cash flow is negative, it affects you hugely. If you’re not able to get extra jobs, you might end up with so much debt or even selling your property. And you’ll always worry about income volatility.

2. You might have mounting debts.

It is almost inevitable to take more loans when your income doesn’t match your spending. In fact, you could even consider taking up loans with large interest rates, which will, in turn, compound your expenses.

If you’re not careful, you might begin to mount debts to keep up with your lifestyle. According to a CFSI report, more than 20 percent of Americans are in huge debt, and a large percentage of these people complain about being stressed financially.

3. You might experience income volatility.

This is one issue a lot of people are afraid to experience. Income volatility involves a gain or loss of at least 25% of their income from one year to the next. The reality is it can happen at any time.

In the United States, many families experience income volatility, making it hard for them to make savings or even draw up a budget. In fact, close to half of the employed Americans complain that they get broke or run out of money between paychecks.

4. Little or no savings.

Well, it becomes hard to save when your expenses exceed your income. In fact, you would use your previous savings to cater for your daily or monthly expenses, which is not an option for the long term since it could lead to bankruptcy.

In America, about 46 percent complain that they cannot keep up a budget, nor can they save. This puts them in a bad place financially.

5. Selling assets.

For some people, managing this kind of situation is pretty tough. Especially when you are used to a particular lifestyle, for those who are financially capable of handling their expenses, when it exceeds their income, they end up selling their assets to keep up with their expenses.

Sadly this option is not sustainable because it is a short term plan, and if it continues for a while, they end up becoming bankrupt, incurring loan debts and losing all their property.

READ MORE: How To Ask For Financial Help Online.

What you can do when your expenses are higher than your income.

To avoid mounting debt, financial stress and income volatility, there are ways with which you can handle your finances in such a situation to keep you afloat and in control. There are steps you can take, and you’ll come out ahead of your financial situation.

For the short term, you can sell your assets and use your savings, emergency funds, or credit cards to meet your expenses. However, it is not a long term plan and can be a financial risk for you. But here’s what you can do;

  • Evaluate your situation.

The first step to achieving financial freedom in such a situation where your expenses become higher than your income is to evaluate your situation. How bad is it? It is important to do so because it will help you make the right choices. Evaluation helps you realize how bad the situation is.

If it has become a constant occurrence, then you have two options to choose from. You either increase your income or reduce your spending. To achieve this, you need to answer the question, why? Why are your expenses always higher than your income?

If you can answer the question, it will help you either reduce your spending or increase your income. If your expenses are things you cannot do without, like tuition, rent, health, mortgage, utility, electricity, groceries and others, then you’ll consider increasing your income.

  • Know the difference between need and want.

After evaluating your situation and you have decided to cut down on your expenses, the next step is to differentiate your need from your want. For instance, instead of using your internet, mobile plan and streaming that costs over $100 monthly, you can opt for internet Wifi.

What are the things you don’t need that you spend money on? You can write them out. For instance, “you need food, but you want cake and lobster”. “You need a car to get to work early, but you want a Tesla Model X” Differentiate your needs from your wants.

Another thing you can do is to sift through your personal belongings for the things you have that you do not necessarily need. You can consider putting them up for a garage sale. Or if you live in a big house all by yourself and have extra space, you can give it up for rent. This way, you are saving some money on rent. It will help you live within your means.

  • Cut down on your spending and live within your means. 

This option is very crucial. When your expenses are constantly toppling over, and your income can barely meet up, you need to make the hard call by cutting down on your spending. It may sound not easy, but you can do it.

When you cut down on your spending, you would spend less than your income. You can do this by creating a budget to help you track your spending. If you want the process to be simple, you can try a simple method called “backward budgeting“.

All you need to do is write down your income and subtract each expense from your pay each month. If you get a negative number, it means you’re spending too much, and you need to cut back on it.

  • Take up more jobs and boost your income.

Apart from cutting down on your spending, putting up a garage sale or renting out your garage to someone to raise extra cash, you can also take up more jobs. If you already have a nine to five job, you can take a freelancing job to make extra cash. A second job will help raise your income. If you’re unable to get a second job, you can work towards getting a better-paying job.

Apart from taking up more jobs, you can boost your income by adjusting your tax withholding. This will only work when you typically get a tax refund. Make sure you’re properly signed up for the right health and other benefits provided by the company you work for.

  • Engage frugal mode.

The frugal model might sound silly, but it works. To spend wisely, you need to spend every penny like it was your last. Engaging in frugal mode means that you’ll seek out the best deal you can get and still bargain a discount if possible. It also means switching from what food product brand you like to the brand you can afford, like choosing a McDonalds instead of a Wendy’s.

  • Build an emergency fund.

An emergency fund is the savings you keep in case of emergencies. It helps you whenever you have financial emergencies and keeps you from resorting to credit cards. Build your emergency funds to help relieve you of financial stress.

You can start with saving $100 to $200 monthly. But it is ideal to use your budget to figure out what you can save up for situations when you have an income shortage. It will go a long way in helping you cope with high expenses.

  • Create room for savings and plan for the future.

Saving is something that cannot be overemphasized. It helps you handle financial crises in the future. If you are accustomed to overspending, learn to cut off the things you don’t need by making a monthly budget. With your budgeting, you can save up for the future, including rainy days. And when you save, you create room for financial freedom.


Utility bills, rent, food, and student loans are expensive and financially draining. But what’s worse is when your expenses are constantly higher than your income. It raises concerns and makes you experience money stress. Sometimes it leads to large debts and even bankruptcy if you are not careful. However, you can avoid these by taking the steps listed in this article.


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