We know a guy in the automotive business who keeps spending like a king no matter what the market is like. When the market was booming, he was making money hand over fist. He lived a lavish lifestyle and socked away a considerable sum of money to protect himself and his family in the event of any market downturns, which is an excellent strategy.
The problem, however, is that during the most recent market downturn, he continued spending as he did when the money was gushing in. The gush is now down to a trickle, yet the guy keeps spending they way he was before. He’s not in foreclosure, but the lavish family vacations, the
expensive luxury automobiles, and the high- dollar extras, which were quite affordable before, are gobbling up huge chunks of his sav- ings. If the market doesn’t turn around sometime soon, we’re afraid that he’s going to be facing foreclosure and wishing that he’d spent his money a little more wisely.
When your financial landscape changes, you and your family may need to become more proactive and take the steps necessary to ward off a future fiscal crisis. Don’t just keep spend- ing as you did before, thinking that everything will be okay.
Hanging up on some phone services
Everyone seems to have a cellphone these days. We often encounter families in foreclosure in which every single family member has a cellphone — mom, dad, teenagers, and even grade-school kids are equipped. In addition, the family may even have a separate landline and a line for the Internet.
Are all these phones and phone lines necessary? Do you really need to call home from the movie rental place to find out which movie to rent? Does your teenager really benefit from spending hours on the phone every single day chatting with friends?
Paul has a friend he calls “Batman,” because the guy’s belt is decked out with just about every wireless communication device known to man. He has a cell- phone, pager, BlackBerry, you name it. It looks like he’s wearing a Bat belt. In his line of work, this can be considered a necessity, but most people can get by comfortably without all these gadgets.
Take a close look at your phone bills and decide what you can live without. If a device saves you more in convenience and productivity than the cost of having it, keep it. If it’s just one more extravagance that you can live without, or if it’s a major distraction that simply gobbles up time you could be spend- ing earning some money, get rid of it. Many families decide to do away with their landlines and rely solely on the cellphone; this may be an option for you.
You may also be able to trim your phone expenses by looking into other plans, switching services, or having your teenagers cover the cost of having their own cellphones. You would be surprised to learn how many people just pay their bill without actually reviewing it. The plan you signed up for may not be the best and most cost-efficient right now.
Cutting the cable on premium TV
Big-screen HDTVs, satellite TV, and cable service are three luxuries that every family can do without, yet nearly all the families we visit who are facing fore- closure have cutting-edge entertainment systems. Most households outfitted with 10,000 channels of cable or satellite TV, plus premium sports channels and movies on demand, end up spending most of their time watching three or four free local-access channels anyway.
If you simply can’t part with your cable or satellite service, then look for other areas to cut on your family entertainment budget. Consider cutting movie rentals or family trips to the local movie theater. Instead, stay home and explore those other 9,996 channels you’ve been missing out on. You can probably save enough by cutting one trip to the movie theater to pay for a whole month’s worth of satellite TV. Also consider cutting back on your satel- lite or cable service, opting for one of the basic plans instead.
Eating in
How much do you spend eating out every month? If you’re like an average family of four, every time you circle through the drive-through, you rack up a bill of $25 to $30. The average price of a combo meal is about $6. Biggie-size it, and you’re looking at $7 to $8. Eat out three or four times a week, and over the course of a month, you’re shelling out $300 to $500. If you’re a careful shopper, that could cover an entire month’s worth of groceries!
You can get a 2-liter of pop for less than it costs for a large soft drink, and that 2-liter isn’t three-fourths full of ice.
Trim the fat by cooking your own meals at home; planning at least a few nutritional, but low-cost meals, like tomato soup and grilled cheese sand- wiches; and brown-bagging it for lunch. You can even transform mealtime into family time, by involving all family members in the meal planning, gro- cery shopping, food preparation, and cleanup. It doesn’t have to make you miserable — it just has to be affordable. Eating out is not a necessity.
Avoid impulse purchases. Plan your meals for the week, create your grocery list, and then go to the store just to pick up what’s on the list. Whoever is best at getting only what’s on the list should be the designated shopper. Prepared food is always more expensive, but if you find that you’re buying fresh food and letting it spoil, then shopping in the frozen-food aisle may save you some money.
Chopping clothing costs (for the fashionably poor)
Everyone has a weakness. Some are cellphone junkies, others are fast food addicts, and more than a few are clothing fanatics, changing their entire wardrobes with every change in seasons or waist size.
You and other family members don’t have to look like orphans to save a little money on clothes. You just need to watch your wallet, stick to your budget, and find less expensive duds. Here are a few tips for clothing your family on a budget:
Make that suit last another season.Nobody’s going to notice that the suit you’re wearing is the same one you wore last fall.
Pass it down.If you have children, don’t toss the clothes as soon as your oldest child outgrows them. Save them for the next kid. Some kids are going to grumble about this, but they need to learn to make some sacri- fices, too.
Buy gently used clothes or even new clothes at Goodwill or the Salvation Army store.These stores often receive brand-new clothing, sometimes even designer fashions, that you can purchase for a few dollars. Shirts and jeans are real bargains!
Check out consignment shops and other stores that deal in hand-me- downs.You can often find clothing with the original tags still on them, only instead of having to pay $47.50, you can now pick it up for $8.25 or less.
Watch your spending on accessories.Shoes, belts, hats, and even purses and wallets can chip away at your budget fairly quickly.
If you simply can’t resist the sales or that darling little item, stay away from stores until the urge to buy subsides. You may also want to steer clear of the sales inserts in the Sunday paper and pull the plug on the family’s online shopping.
Expenses in the clothing category are a mix of necessity and luxury. Buy what you need, but pass over what you want, at least until you’re back on your feet again. You can save a good chunk of money by focusing on necessities and slashing the luxuries.
Boosting Your Total Household Income
When you can’t make ends meet with expense cuts alone, start looking at the other end of the cash flow equation — income. You, your partner, and any children you have may be able to generate just enough additional income to make it work — assuming, of course, that you’re committed to retaining pos- session of your property. You can use the additional income to cover daily expenses or earmark it all for the house.
Everything is a trade-off. If you’re committed to keeping your property, you need to work harder. If you’re working as hard as you can (or want to) work, and you still can’t make it happen, then you need to slash even more expenses and perhaps even sell the property and move into something more affordable. Nobody can tell you what’s best for you and your family.
We can only lay out your options.
In the following sections, we discuss two ways to increase the household income — taking on another job yourself and putting other family members to work.
Moonlighting
Assuming your current agreement with your employer doesn’t rule out moon- lighting as an option, this can be an excellent source for the extra cash you need. We know of many mechanics who do minor repairs in their garage for a fraction of the cost you would pay at a repair shop, and they earn a good
chunk of cash doing it. Carpenters who frame houses by day may work nights and weekends building and installing cabinets. Photographers who take family portraits in the mall during the week can pick up some extra cash by photographing weddings and anniversaries on weekends. If you don’t have a marketable skill, you can still earn some extra money by taking on a second job at a local restaurant or store. Do it regularly enough and you have a steady additional flow of income.
Moonlighting does have a couple drawbacks:
It can quickly sap your energy and distract from your day job.We wouldn’t want you to lose your primary occupation by taking on side jobs.
It doesn’t always deliver a steady stream of cash.You may get loads of work one month and nothing the next. Moonlighting is “extra” money and can be a great way to catch up on some delinquent bills, or throw a little extra at the payments you planned out in your program, but it’s not always reliable.
Don’t plan on the extra money unless you always get the extra work or are very confident that you’ll be able to hustle up side jobs. Develop a plan that doesn’ttake into account the sporadic moonlighting money, but use that money to help you reach your goals earlier than the plan calls for.
If you have young children, you may need to draw up a work schedule that consists of one spouse working days and the other going to work when the first comes home in the evening. Depending on your family’s goals, this can be a temporary arrangement until the family gets back on its feet.
Putting other family members to work
During World War II, when manpower was short in the United States, women made up a significant segment of the workforce. If you’re a baby boomer or older, you probably remember the Rosie the Riveter posters. (If not, you can check them out at www.rosietheriveter.com.) When the United States was at war, everyone pulled together and contributed to keep the country running and our military overseas well equipped.
When your family is facing foreclosure, everybody of working age can pull together and contribute his or her fair share to get the family back on its feet.
If you have young children whom you’re trying to shield from the problem, that’s fine, but older teenagers are certainly capable of earning their own spending money and enough to cover their cellphone bills. Simply explain what’s going on, ask them to assist you and be part of the solution, and share your plan with them. The experience can be very valuable in the future, if they ever face a similar situation.
If an older child is extremely reluctant or refuses to help, tough love may be the order of the day. Older kids need to be paying their fair share. Obviously, we’re not talking about asking your 15-year-old son to get a job bagging gro- ceries and turn over his whole $87 paycheck each week, but you may ask your 17-year-old daughter to help offset the additional cost of auto insurance with a portion of her weekly check. Adult children should be working and contributing something toward the house payment, maintenance, and utilities;
otherwise, perhaps theycan find more affordable accommodations elsewhere.
Consulting with a Credit Counselor
When people have emotional or psychological issues, they turn to a thera- pist. When they have marital troubles, they turn to a marriage counselor.
Yet, many people avoid seeking counsel when their finances are in shambles.
Certain financially gifted individuals specialize in offering financial advice to those who struggle in this area. Don’t hesitate to call on them for assistance.
Ask friends, family members, your bank, or a real estate or financial profes- sional for references, or search online for a credit counselor. Choose at least three prospective candidates, and interview them thoroughly. Make sure you understand whatever program each person offers and its cost. Just because a credit counseling service claims to be a nonprofit organization doesn’t mean that its services are free. You can find a list of government-approved credit counseling agencies at www.usdoj.gov/ust/eo/bapcpa/ccde/cc_
approved.htm. Another useful site at www.debtadvice.orgis maintained by the National Foundation for Credit Counseling (NFCC).
Choose a credit counselor carefully. Nonprofit organizations don’t always offer free or affordable service, and some may not even be legitimate. Find out exactly how much it’s going to cost you before you sign on the dotted line, and be less than generous if the organization asks for a contribution.
Compare at least three services before choosing one. Look for a counselor who can meet with you in person. Universities, military bases, credit unions, housing authorities, and other institutions may be able to steer you toward a reputable credit counselor. Also ask family members and friends for referrals.
For additional information, check out the Federal Trade Commission’s
“Choosing a Credit Counselor” article at www.ftc.gov/bcp/conline/
pubs/credit/fiscal.shtm.
Some credit counselors have arrangements with credit card companies and other lenders who foot the bill. In exchange, the credit counselor assists the credit card company or lender collect on a debt that otherwise would be uncollectible. In many cases, counselors can work out a win-win solution for both the lenders and the debtors — but make sure the counselor is working
for you and not just pretending to. Whatever the arrangement, take a moment to think about any plan before you sign up. Make sure that the company can deliver on any promises it makes — and that it’s done so in the past.
A qualified and reputable credit counselor can:
Analyze your situation and present several options from which to choose.
Negotiate payment plans with your creditorsthat allow you to make payments, avoid repossession actions, and protect your credit score.
Negotiate short sales or discounted payoff amountsthat enable you to square away a debt for less than you currently owe. This can free up money to pay other debts.
Suggest debt consolidation refinancingthat may result in a single monthly payment that is less than what you currently pay per month on all your other payments combined. (See the “Consolidating Your Debts into One Low Monthly Payment” section, later in this chapter, for addi- tional details.)
Assist you in drawing up a plan to prioritize your debts, schedule pay- ments, and develop a budget.