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Monday, April 30, 2012

 

Budgeting through a crisis

If your earnings are dropping, or your debt is piling up, bring order to your finances by taking a hard look at what you’re spending and how it matches up with your income


By Samantha Maziarz Christmann
News Business Reporter

There are not many scarier things that can happen to a person. You’re already living paycheck to paycheck, when suddenly you find yourself out of a job.

Unfortunately, it happens all the time. The unemployment rate in the Buffalo Niagara region rose to 8.6 percent in March, up from 8.3 percent during the same month a year ago.

During his nearly two decades as a volunteer budget coach, Patrick Mellody has talked his share of clients down from the ledge, just as someone else dove in to help rescue him when he was drowning in debt years ago.

The Derby-based author put the lessons he has learned over the years into a recently published book called “The Unemployment Budget: Your financial survival plan.”

“I wrote this book to help others as I was helped,” Mellody said. “And many Western New Yorkers need help right now.”

Because so many of us fail to plan for things like unemployment, the loss of a job often puts people into crisis mode.

Carissa DiRado, director of counseling at Credit Counseling Services of Buffalo, has worked with plenty of people in just that frantic situation.

In fact, her advice to people who are newly unemployed is very similar to the advice she gives to anyone who has more money going out each month than coming in: Find ways to spend less or earn more.

“If a person’s living expenses exceed their income, changes will need to be made as quickly as possible to avoid a financial crisis,” DiRado said.

During these circumstances, it’s more important than any ever to track your expenses and create a bare-bones budget. Here’s how to get started:
1) Sit down and calculate your take-home household income–a spouse’s income, unemployment benefits—to find out just how much you have to work with. Don’t include unreliable income, such as commissions or overtime.
2) Calculate your living expenses. You can download a budget sheet online from a number of places (try dollartimes.com/download-and-print) and use it as a guide.
Include:
  • Fixed monthly expenses, the bills that come every month in the same amount and at the same time, such as rent or car payments.
  • Variable expenses, bills that change each month, such as gas and electric bills.
  • Flexible expenses, expenses that you can control or do away with altogether, such as a cable TV bill.
3) Add up your income, add up your expenses, then deduct your expenses from your income.
4) If you have money left over after your expenses are paid, put that money towards paying down debt, building emergency savings and funding retirement.
5) If, as is more likely, you have more money going out that coming in, you’ll need to go through your budget and look for places to trim. This is the painful part.
If you use a debit or checking account for most transactions, the easiest way to figure out where your money truly goes and where you can make cuts is to just go through each of your transactions, which are listed on your monthly bank statement.
Be sure to get the whole family involved in the process. Sacrifices will be easier to make if you’ve all come up with a plan together on how to reduce expenses.
Trim and trim some more. Restaurant dining and takeout coffee are the easiest targets to start with — until you have more money coming in than going out.
• If you get to the point where you just can’t make the numbers work, it’s time for what Mellody calls the “crisis budget.” It’s where you put a priority on your “triangle needs,” making sure what income you do have goes toward basic food, shelter and transportation.
• Once you have stripped those “triangle” categories to the bare minimum— switching to cheap, nutritious foods cooked at home, canceling cable, taking an additional, unused car off the road—be sure you continue managing whatever money you have so that you’ll be able to sustain your family’s basic needs.
• If you can’t afford COBRA from your former employer and don’t have medical coverage through your spouse, securing health care for your family is a priority. Both DiRado and Mellody suggest reaching out to government agencies for help if necessary.

“Don’t feel like a welfare case. When you were working, you paid into these services. If you want to pay them back after you are on your feet again, that’s fine, but they exist to help you through a rough time,” Mellody writes.

The same goes for seeking government assistance for other things, such as help with utility bills through programs such as HEAP.

• Another organization highly recommended by Mellody is something called CredAbility. It’s a non-profit organization that will help you come up with a plan to address any remaining debts you have trouble paying. It is not a credit debt settlement agency (stay away from those!) and charges a flat fee of $35 to $50 for its services. Visit credability.com or call 1-800-251-2227.

Consumer Credit Counseling of Buffalo, a nonprofit agency, offers similar services for debt-strapped consumers. Visit cccsbuffalo.orgor call 712-2060.

• Above all, Mellody encourages, don’t give up hope.
“If I can go from being a guy that didn’t even balance his checkbook to being a guy that currently has no debt, you can too,” he writes.
schristmann@buffnews.comnull

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