Prepare for the New Reality

If you have experienced a financial setback, we want to help you get back on your feet. These are some tips and strategies to consider when dealing with the impact of a reduced or lost paycheck.

Prepare for the New Reality

Living on less is never easy, but with a little planning and a positive attitude, you should be able to weather most financial storms. So, take a deep breath, relax, and review the following tips that you can help make any setback smooth and (almost) painless.

Pragmatic Planning

  • Now is the time to take stock of what you can do to avoid being hit with a financial shock later. Avoid the urge to procrastinate - Mark on your calendar the date that you will have to live on less.
  • Anticipating a tax refund? If so, beat the rush and file your taxes as soon as possible so you don't have to wait for much needed cash.
  • Put money aside in a special "piggy bank" or savings account for the occasion.
  • Start thinking about generating money by selling an asset. This can include anything from having a garage sale to selling stock (just beware of capital gains taxes for next year).

Budgeting Basics

  • Financial planning begins and ends with a realistic budget. If you haven't reviewed your goals, assets, income, expenses, and debt in a while (or ever) now is the time to do it. Sit down and do the numbers crunch. It is worth the effort.
  • Once you have an accurate idea of where your money is going each month, take a good, hard look at it. Are there areas you can reduce or eliminate? Just how important is the $4 morning muffin and coffee? Five times per week will run you $80 a month. This is your opportunity to analyze when and how you spend your money - and make positive decisions about what you may want to change.
  • Track your expenses. It's a great habit to get into, and you may be able to prevent "money leakage" - the fast cash $40 that seems to evaporate before you leave the ATM machine. By plugging the holes now, you can save more efficiently for the times when you will really need it.

Savvy Saving

  • Emergency savings are for times like this. If you have saved some money, pat yourself on the back - you deserve it. Take out only what you need and spend prudently.
  • If you do not have a savings account to fall back on, don't despair. However, this is a good example of a situation where an emergency savings would be helpful, and may be the perfect motivation to start one. Ask your employer to have money deducted from your paycheck and deposited into a savings account. Three to six months of accessible expenses in a liquid account is standard.

Smart Shopping

  • Consider every purchase - Do you need it? Do you need it now? Can you get it for less somewhere else? Asking yourself these questions will help you become a savvy shopper in both flush and tough times.
  • Buy in bulk - but only if you can afford it. It doesn't make sense to buy a 50 pound bag of cat food, even if it is a great deal, if you really only have enough for a box that will last the week.
  • If there is a farmers market in your area, you can take advantage of the freshest produce for "dirt" cheap prices.
  • Use coupons to save on food costs. But beware - you may be lured into buying something you would never otherwise purchase simply because it seems like such a bargain. Do you really need four packs of triple A batteries, or orange-confetti cake frosting?
  • Cut entertainment costs by renting videos rather than going to the movies. Or take advantage of the movies available on the cable or satellite you already pay for.
  • Eat at home rather than going to restaurants - even fast food is often more expensive than a home cooked meal. If you do go out, try eating at cheaper restaurants or take food out rather than eating in the restaurant to save on tips and drinks.
  • Save on supplies - use sponges rather than paper towels, a multi-purpose cleaner instead of several specialized ones, and recycle newspapers, bottles and cans. You will help save the earth while saving money!

Credit Control

  • If you find you can't pay your bills, contact your creditors and explain your predicament - you may be able to avoid a late payment fee, particularly if your payment history has been consistent. A phone call is good, but a letter is better, as you will have tangible evidence of your efforts. Keep copies of all correspondence and maintain a log of telephone communications, complete with a representative's name and time of call.
  • If you have credit card debt, pull out your most recent statements and check your present annual percentage rates. Are they higher than you remembered? Or simply too high for you to be comfortable with? If so, it may be time to make some changes:
    • Give your current creditors a chance. If you have been a good customer, remind them of it, and ask for an interest rate reduction. A five-minute phone call can make for huge savings.
    • Consider transferring your balances to low interest cards or those with extremely low "teaser" rates. Be sure to evaluate the transfer offers carefully though - How long does the offer last? Is the APR 5.9% or 5.9% plus the prime rate of interest? How long is the grace period - you may not want to go from a 30 day grace to a 20 day grace. What is the punitive interest rate for late payments? They can be as high as 36% -- quite a jump from the original offer.
  • Credit card debt is expensive. And frustrating. If you feel you have been treading water or watching the balance grow rather than plunge, go back to your budget and consider making changes. A $2,000 balance with a 19% interest rate will take 30 years to repay if you just make the minimum payment - and that's if you never make another purchase on it!
  • Debt consolidation may be an option. A Debt Management Plan is designed to help consumers repay their debt in three to five years by offering interest rate reductions (depending on the creditor), one monthly payment, and a commitment from you to not get into further debt.

Finally, remember that planning ahead is key to being prepared for tomorrow.

Content provided by our trusted partner   Balance Pro

It's challenging enough to make a paycheck last when it comes on a regular basis - but what happens when you have to take mandatory vacation, or are paid for some months out of the year but not others? With planning and a careful look at your finances, you can survive the times when the checks are on hold but the expenses march on.

What to do today

Not having enough money to pay for life's necessities can be pretty scary, but there are a few things you can do to get you through this time with minimal hardship.

Your first task is to take a look at your monthly expenses and prioritize them. Decide what you need to pay for and what you can, at least for now, let go. Housing, food, transportation, and insurance should take top priority. Dining out, clothes, and entertainment may need to be sacrificed for the time being. Remember, this isn't forever, when the cash is flowing again, they can be resumed.

When shopping, consider every purchase. Ask yourself if you really need it, and if you do, can it wait a while, or can you get it for less somewhere else. Getting in the habit of asking yourself these questions will help you become a savvy shopper in both flush and tough times. This will also help you avoid relying on credit cards during this difficult period. It might be hard, but you will be so much happier when that next paycheck comes in and it is not promised to high interest debt.

If you have credit card payments, and you simply don't have the money, contact your creditors immediately. You may be eligible for special programs that will keep your accounts in good standing. Waiting until you are behind will not only increase your balance because of hiked up interest rates and fees, but will damage your credit as well.

If you really need to scare up some funds, consider every option:

  • Sell assets, from a garage sale to unloading securities (just beware capital gains taxes for next year).
  • Obtain temporary employment elsewhere.
  • If you have children who work, ask them to contribute to the household budget.
  • Make and sell things if you have a creative streak.
  • Ask a friend or family member for a loan. Chances are they won't charge any or much interest, but be careful – these sorts of arrangements have damaged many a relationship.
  • Borrow from your retirement account or cash value life insurance plan. Be aware, though, that you are borrowing from an asset accumulated for a specific purpose. These come with their own set of problems if you can't pay them back.

There are other sources of funds available, but beware: they may not be in your best interest in the long run.

  • Payday loans – Borrowing against future income can seem like a great short-term solution, but with average annual interest rates ranging from 390% to 871%, payday loans are no bargain.
  • Credit card cash advances – There is often an origination fee to take out cash from a credit card, and interest not only begins to accumulate immediately, but is often higher than for purchases.
  • Home equity loans or lines of credit – Borrowing from the equity in your home does have advantages - the interest is often tax deductible, and the money is readily available. However, if you can't repay the loan, you put your home in danger of foreclosure.
  • Car note loans – These loans work by a borrower exchanging the title and set of keys for a loan based on the vehicle's value. Interest rates range from 30 to 120 percent, and if a single payment is missed, the car can be repossessed.
  • High interest unsecured loans – Usually lent in increments of $5,000 or $10,000, interest rates for this new breed of high-risk, unsecured loans can be as much as 47 percent.

Planning for Next Time

So what do you do to prevent a scramble for cash next time around? First, mark on your calendar the date that you will have to live on less, so it doesn't come as a surprise.

The money you get today will have to be stretched to cover those times when there will be nothing (or less than normal) coming in. Resist the urge to spend it all each month. Develop a detailed budget to know what your monthly expenses are, and then prorate your income:

Example: Your monthly expenses total $2,000. You don't get paid for two months out of the year, so will have to have $4,000 ($2,000 x 2 = $4,000) set aside for those non-income earning months. For each of the ten months that you do receive a paycheck, you'll have to set aside $400 ($4,000/10 = $400) to cover the time you won't get paid.

Once you know how much you will need to sock away, have the sum deducted monthly from your checking account and automatically deposited into a savings account.

Since you know you will be needing at least some of the money in a relatively short time frame, make sure you have the portion you need in an account that is easily accessible and penalty free (such as a savings account or money market account.)

Careful planning is the key to surviving a time when a paycheck is on hold. By doing so, you'll avoid that dreadful feeling when the lean times are on your doorstep - and your account is bare.

Content provided by our trusted partner   Balance Pro

Countless Americans are earning considerably less then they used to - and struggling to keep up with expenses. A wide range of circumstances can boomerang personal income back to where it started. Bubbles burst, the economy falters, companies downsize, and personal disasters happen. Perpetual salary growth - or even maintenance - is simply not guaranteed. However, by adopting the right tools and attitude, you can make the most of a reduced paycheck - and not just survive, but thrive.

Determine whether your situation is temporary or permanent

If you fully expect to be back in the CEO's chair soon, you may only have to adjust to lessened cash flow for a limited time. But before you tap into your reserves (and retirement savings, home equity, cash value life insurance, et cetera) it would be wise to behave as if the salary depreciation is lasting. Though both your gut and your resume may assure that a six figure income is just around the corner, you can't know for certain until you are negotiating the fine points of your defined benefit plan. Cut down on spending now. Securing that job may be harder and take longer then you think.

If you never expect to make as much money as you once did, you may be experiencing anxiety and depression - normal emotions not easily shrugged off. There are practical matters to contend with as well, (such as how you will pay your bills) which can send you into panic mode. Adopting a systematic approach of simply doing what you can will take you far.

Recognize that your salary is not you

This is a deceptively obvious statement. Of course your salary is not you. But many people's self esteem directly corresponds with how much money they make - the higher the income, the more important they feel. If your mood declines when your income drops, make every effort to dispel the attitude that wealth equals worth. It does not, nor does having an abundance of money guarantee happiness. Think back to when you were making more money then you do now. Were you genuinely happier, or did you just have the ability to buy more?

Seize the day

Hardship can hone skills and challenge entrenched ideas. Perhaps you worked in the high tech field because the money was good, but that is not where your passion (or even perhaps, talent) truly is. Consider this your opportunity to discover what you really want out of life. After all, if you are going to dedicate forty or more hours a week to your job, it should be something you love. Or at least like.

If you are currently unemployed or are working fewer hours then you had been, use this "extra" time wisely. Your options are as varied and abundant as your desires. Consider taking a class - one that will boost future earning potential (to where it was or even beyond) or for pure pleasure. Write that book, paint the kitchen, start an exercise routine. Or just relax. Chances are, at the end of many a grueling day at your former highly paid yet high-stress job, you said to yourself through gritted teeth "all I want to do is lay down on the couch, TV on, shoes off and do nothing." Well now you can. Enjoy this time - it may not last forever.

Analyze your expenses and value system

When cash is copious, it is easy to spend arbitrarily. However, when the salary that sustained such a lifestyle is gone or drastically reduced, its time to take a good strong look at what you need to spend your money on, not what you can. Prioritize expenses now, and identify which bills take precedence. Mortgage versus car payment? Credit cards versus utilities? Analyze the ramifications of missing or not paying each. If you need help deciding, contact an expert. CCCS-SF/Balance provides free financial counseling and appointments can be conducted over the telephone at a time and date that works for you.

Develop a budget. It will help you to discern between those expenses you can and cannot live without. If you find there is simply not enough money to support your necessities, much less your desires, at the very least you now know how much you will require from your next job. If expensive (and expensed) dinners are now a thing of the past, relish in the delights of a cheap pizza, or making cold cuts stretch with lots of lettuce. Enjoy and appreciate the things you may have begun to take for granted.

Remember: credit is not supplementary income

When money is tight, credit cards can take on an unusually seductive glow. However, a $40,000 line of credit is not a bonus in disguise, no matter how you much you wish it was. If you use credit to maintain the lifestyle you've grown accustomed to, it won't be long before you "hit the wall." Without an income to support repaying the balance in full every month, you'll be paying in installments. Interest rates are commonly in the high teens, and if you fall behind, they will likely skyrocket. Late and over limit fees will add to an increasingly daunting balance. And soon you'll be wishing you could return all the merchandise you bought and the meals you ate just so you don't have to open another statement and look at those big, scary numbers. Credit cards are not designed to be emergency savings accounts.

Develop a plan

To thwart procrastination, write down what you want to achieve during this time. Be specific: include names of people you need to speak to and proposed accomplishment dates for each task. Update and refer to it regularly. Apathy's enemy is a detailed and well thought out plan.

Go forward

Get professional assistance, talk to friends, and find others who are in like circumstances. It is too easy to think you are alone in this - support is key. Vent to those who can empathize; ask for help from those who can assist. Shock, shame, and anger are normal and feeling these emotions is expected. But by adopting a positive attitude and taking pragmatic steps, you can adapt to a reduced income - and achieve a financially stable future.

Content provided by our trusted partner   Balance Pro