The last thing you want to be worried about is loosing your job or having a reduction in your family income. However in today’s economy, this is a real possibility. A sudden loss of income can occur not only from the loss of your job, but may be due to layoffs or cutbacks, reduction in pay, or the loss of financial support from a spouse. Any of these events can be a serious blow to families who are struggling to make ends meet.
Very often the reduction in a family’s income is not expected, and the natural reaction is panic. If your family suffers loss of income, try to remain calm. Take control of the situation by doing the best you can with the resources available. Today’s article offers suggestions to help you make day-to-day decisions with the money you do have, cope with creditors, maintain control over your finances and protect your family’s welfare.
• Take stock of your situation: Take some time to study your current financial and family resources. Once you know and understand your situation, you can develop a plan for making the most of family and community resources. A little knowledge goes much further than either imagining the worst or ignoring reality and neglecting bills.
• Take stock of family resources: Who are the other wage earners in the household? How long can you depend on those incomes? Consider any funds, which you have in reserve, such as savings or life insurance cash value. Look at everything you own. What items are you willing to sell in order to raise funds? Make a list of your family’s nonfinancial resources that can be used to cut costs, trade for needed goods and services, or used to produce income.
• Evaluate family financial obligations: Evaluate your monthly expenses. Expenses can be divided into those that are fixed and flexible. Fixed expenses, or debts, are those for which your family is obligated to pay a set amount. Examples of fixed expenses are mortgage or rent payments, consumer or automobile loans, and charge cards. List all of your fixed expenses.
• Calculate your family’s monthly flexible expenses. Flexible expenses are harder to estimate, so use your checkbooks or cancelled receipts to gain an accurate accounting of these expenses. Examples of these expenses may be food, clothing, phone, entertainment, etc. Be realistic about which items are actual needs and which items can be reduced or eliminated.
• Reorganize family spending: Do you need it or want it? No longer can the family afford to “waste” money on luxurious, frivolous, or unnecessary items. It is important that family members agree on which goods and services are high priority, which are less important, and which can be postponed or replaced by less expensive substitutes until finances improve.
• Set priorities for spending: Some expenses are more important than others. Putting your bills in a stack and paying them until the money runs out won’t work. Set priorities for your spending to make sure you meet the health and welfare needs of family members and minimize the legal and economic risks of not paying some bills.
• Negotiate your payments: Contact all of your creditors before your bills are due, explain your situation, and offer to negotiate new repayment terms. The following is an example of how you might rank your spending: First Priority-food and shelter; Second Priority-Utilities, insurance, automobile loan; Third Priority-Credit cards and outstanding debts, finance companies, credit union, and other loans; and Fourth Priority-Doctors, dentists, hospital, and retailers.
Coping with the stress and hardships of a reduced income is not an easy task for you or your family. There are no easy answers or quick cures. You can maintain control of your situation during this period of financial change by reducing and prioritizing spending as much and as quickly as possible. Hopefully the procedures outlined here will help you clarify your priorities, make decisions, implement a plan, minimize your anxiety, and strengthen and prepare you and your family for the future. If you would like additional information on this subject, call us at 919-775-5624 and ask for our eight part series “When Your Income Drops.”
Susan C. Condlin is the County Extension Director for the North Carolina Cooperative Extension Service in Lee County.