This blog post is contributed by Sheila May, CPA. She has a masters of taxation and performs forensic accounting and litigation support services. You can find more about Sheila at www.thetruthisinthenumbers.com and read her blog at www.thetruthisinthenumbers.wordpress.com.
If you are reading this article, you have taken the crucial first step. You are facing the fact that you need to look at the situation, your reduced income, straight on. The most important thing you can do always, but certainly when your means of income has been reduced, is face the situation. Ignoring, running from, or putting off facing reduced means will only make matters worse. So, congratulations, just by thinking of how to handle this time makes you leaps and bounds more prepared than a lot of people. Below are the big questions to consider and resources to assist.
1. What money do you have now? Take a look at possible sources of money you available to bring you through this time. A. Cash in bank accounts is the most ideal. B. Stocks and mutual funds in individual investment accounts that can be sold are an option, but doing so has tax consequences – a capital gain if there has been an increase in value and a capital loss if there has been a decrease. Liquidating stocks and mutual funds in retirement accounts have high penalties and tax consequences. Please check with a tax person before choosing these options. C. Available credit limits on credit cards are even less ideal as the interest rates are high. Think about if you can use your credit card for expenses that you will be able to pay back within the month with unemployment benefits or money from a part-time job. D. Borrowing is an option. There may be someone in the position to help you through this temporary situation, but consider this option carefully. Paying back what you borrow will be crucial to the relationship.
2. What money can you save? Look at what you can save such as cheaper food bills, cutting cable plans, or taking public transportation. You may have auto-payments or auto-saving plans set up that you can no longer afford such as monthly amounts put into a bank account. It may be a good idea at this time to remove auto payments of bills so you will have greater control of when you pay certain bills.
While you are trying to reduce your spending, remember one expense will increase, the money you spend looking for a job. It takes money to drive, park, print necessary paperwork, dress for a job interview, and attend networking events.
3. Time your inflows and outflows of cash. While you are culling through your expenses, create a monthly budget of expenses. I like to make my budget not just with amounts, but showing days I pay for items. Think of paying bills as outflow and any money receive as an inflow. By showing which days there are inflows and outflows you can see if you need to delay the payment of bills to a certain day.
Call the customer service number found on bills and ask to rearrange amounts owed to lesser amounts and/or different days of the month. Remember it is always an option to ask for different payment dates. Also, you may be able to change the payment amount.
4. Enjoy your life, even without spending money. Remember this time, although it is a trying time, is part of your life so try to think of inexpensive ways to still do what you like to do. Perhaps it is the time to try cooking because eating out is expensive. Universities, libraries, and bookstores have free speaking events. Museums have free days and evenings. Free concerts are held in all sorts of venues. You can check out DVD’s at the library. A content person with interests will likely interview well.
5. Resources for dealing with limited finances