Things are going smoothly. You are getting the bills paid on time, there is enough food on the table, maybe there is even some extra to pay down debts. Then it happens—disaster. A job loss, illness or maybe the only family car breaks down. Suddenly there is more month than money and you panic.
If you are like a lot of people, when disaster strikes you stick your head in the sand. You stop answering the phone in case it is a collector, you start charging bills on credit cards until you are maxed out. You figure you’ll catch up once the disaster is past.
It doesn’t work that way. It’s a lot easier to dig a hole then it is to fill it back in. Instead of the normal panic and ignore response, be proactive. Get an emergency plan in place before the unthinkable happens. Failing that, sit down and make a plan as soon as you can after the bad news hits. In a year’s time when you’re looking back on the hard times they’ll just be a memory instead of something you are still paying for with both money and your life energy.
Step 1: Survey your assets
Write down every cent you have in the bank and under the mattress. Empty the couch of change, count it out, then write it down. Don’t forget the money you may have in retirement, college or similar long term accounts.
Now, move on to non-cash assets. What do you own that you’d be willing to part with if push came to shove? An extra car, electronics, designer clothing? Check out selling prices on Ebay or Craigslist and write down what these or similar items are selling for.
Finally, list any and all income that may still be available. Paychecks from part-time jobs, unemployment checks and anything else you can depend on. Be careful not to inflate these numbers. There is no guarantee that you can get overtime, after all.
Divide your paper into three columns. In the first list all the cash assets that are readily available such as savings, cash and income. In the second column, list those items you are willing to part with or liquidate if need be. In the final column list the assets you are only willing to use if there is no other choice. If you are lucky, you can squeak by on the assets in the first column for six months, otherwise you need to start liquidating items in the second column.
Step 2: The Bare-bones Budget
Make up a new budget. Not tomorrow, not next month, but right now. List the unavoidable expenses first-housing, utilities, insurance. Now, list the second most important things-food and gas for example. Finally, list everything that you can easily live without-memberships, new clothes, cell phones. If you are paying on debt, list these and their minimum monthly payments last.
Add up everything in the first column to get your main number. This number usually is pretty much set in stone so you must have enough money for these things each month. Any extra cash goes to the second budget category. Why? Because food budgets are fluid. If you only have $60 a week to feed your family, I guarantee you can find a way to do it.
Step 3: Trim the Fat
As soon as you have your cash outflow budgeted, trim the fat. Call and cancel memberships. Often, they’ll offer you a couple of free months to try and keep your business. Get the exact date you will have to start paying again from the customer service person and write it down on your calendar. If the emergency isn’t past when this date rolls around, call and cancel anyway. You also don’t need new clothing, cell phones or movie tickets so put a stop to that spending as well.
Spend a little time trying to trim the fat from your other bills, too. Do a quick comparison shop for insurance. Check to see if you still need to carry private mortgage insurance (PMI) on your home. You may have paid enough on the mortgage now that you can drop it, thus lowering your payment. Drop auto insurance to liability only if your cars are paid off. Up your deductibles on all your plans. Stop making retirement and college contributions.
Step 4: Call Your Creditors
A simple phone call may save you lots of headaches down the road. This is where being proactive really pays. If you have student loans, a phone call may get you a deferment. This means no student loan payments for six months. If you are repaying debts, they may lower your debt payments or allow you to go a month or two with no payments with no negative impact other than interest. If they won’t work with you, then send them a letter stating they are only to contact you via the mail. That way you won’t have to deal with harassing phone calls. Many mortgage and auto loan companies allow you to move a payment to the end of the loan period, effectively allowing you to skip a payment. Don’t use this option until you really have to, as you are only allowed to do this once or twice.
Step 5: Find Community Resources
Do your utility companies know of charities or have their own assistance program? These are often one use only but they can keep the power on if you really can’t pay your bills. Keep a list handy of any financial hardship programs in your area. Hopefully you won’t have to use them, but having them available in case a power shut-off notice shows up in the depth of winter cold gives you peace of mind and prevents you from making stupid mistakes in a panic.
There are other resources that are available for everyone. Bountiful Baskets produce co-op provides low-cost boxes of fruits and vegetables for $15. This is enough produce to feed my family of four for a couple of weeks. Local farms may also have pick-your-own services that allow you access to fresh fruits and vegetables at a fraction of the grocery store prices. Knowing what is around allows you to utilize it without extra footwork in a time of need.
Step 6: The Two Hour Rule
Dedicate two hours a day to either making money or saving money. List some items on Ebay. Sell your services on a site like Elance. Sort through your closet for items and plan a garage sale. Make a months worth of pancakes and freeze them for a low-cost, quick breakfast throughout the month (just pop them in the toaster to heat them). Set a simple goal, such as saving or making $100 extra a week.
Not only does this take some of the heat off, it gives you control over your situation. The worst part of a job loss or other emergency is feeling you have lost all control over your life. Gaining it back, even in small daily increments, will up your morale and make the hard times seem less hard.
Step 7: Have Fun
Believe it or not, these days will pass and if you are lucky become fond memories to impart to your kids or grandkids. Instead of stressing out and being miserable, embrace the challenge. Of course it won’t all be peaches and cream, but you must still make time to laugh. Keep a list of free FUN resources and activities in your area. Free movie days at local theaters, city festivals, a hiking trail you’ve been meaning to trek. All these thing are fun and free. Know what your area offers and dedicate yourself and your family to enjoying one of these things each week. Take a lunch and drinks with you and pass by the vendors at the festivals though, or you’ll just dig yourself in deeper.
When we were going through our hard times, we discovered that our city had a different festival each weekend downtown. We would pack a lunch, load up the kids and go see all there was to see. We saw Japanese sword fighters, dogs performing tricks, two-on-two basketball games, and countless other delights each weekend. Often local businesses had booths offering free face-painting, coloring books and craft tables. We would take a picnic lunch with us and spend the whole day enjoying all the free stuff on offer. I would make homemade caramel corn and package it up in leftover party favor bags for the boys. They were thrilled to have the sticky-sweet stuff the other kids were buying from the vendors, and we were thrilled it only cost us a few cents instead of $5 a bag. Taking time out for fun gave us the power to get through our hard times without feeling deprived, and the lack of money brought us closer instead of driving us apart.