When it Comes to Your Finances, Control What You Can

Peggy R. Anderson

Extension Agent

June 30, 2010

When it Comes to Your Finances, Control What You Can

In recent months, it seems like many things have gotten “out of control” in our country. Between the fragile economy, high unemployment rates, state governments struggling with massive budget cuts, the oil spill in the gulf, and various natural disasters, it seems like there is one source of financial distress after another.

According to Barbara O’Neill, Financial Management Specialist for Rutgers, Cooperative Extension, research indicates that “feeling out of control” is a major cause of unhappiness and stress. Most people don’t like living without at least some type of game plan. That’s why commuting always ranks high as a source of unhappiness in life. Commuters often run into unplanned obstacles such as traffic snarls, road closures, and weather-related incidents that force them to adjust their normal driving routines.

What to do? Control what can about your personal finances and develop contingency plans for negative life events. Below is a description of eight ways to take charge of your finances during uncertain times:

1. Program Your Dollars- Develop a spending plan (budget) where income is greater than or equal to savings plus household expenses. Reduce discretionary expenses as needed and consider reductions to large fixed expenses (e.g., refinancing a mortgage or trading down to a smaller home or apartment). Rutgers Cooperative Extension has several online resources to assist with budget preparation. To download a worksheet that can be completed with a pencil and a hand-held calculator, visit http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf. To download a spending plan spreadsheet that uses pre-programmed Microsoft Excel® software to make income and expense calculations with a computer, visit http://njaes.rutgers.edu/money/templates/Spending-Plan-Template.xls.

2. Build Precautionary Savings- Having a chunk of money in the bank increases feelings of control during a financial crisis. Many financial experts now recommend holding more than the “standard” 3 to 6 months of expenses because it is taking laid-off workers longer to find new jobs. For example, eight months of $2,000 monthly expenses equals $16,000. Realistically, many people don’t have savings anywhere near this level, but it is important not to give up. Any amount of savings is better than none and, the more money people have set aside, the bigger their “war chest” to tap during a financial crisis.

3. Downsize Your Debt- A financial crisis is less stressful when an individual or family isn’t carrying a lot of non-mortgage debt and making payments equal to 10% or more of net (take-home) income. Pay off outstanding balances as quickly as possible. The web site www.powerpay.org has a debt repayment calculator that shows the time and interest saved by accelerating debt repayment. Once debt is repaid, previously owed monthly payments can be reallocated to build up emergency savings.

4. Build Human Capital- Do everything you can to make yourself “marketable” to employers in a tough economy. Learn new skills and cultivate new business contacts. In addition to keeping up with your profession or trade, invest the time to learn technological skills such as social networking and the use of a smart phone. Many employers now expect new and current employees to have these skills.

5. Practice Healthy Behaviors- Like outstanding debt, health problems compound the effects of a financial crisis. Do what you can to stay healthy and avoid non-routine medical expenses. Eat nutritious food, exercise at least 30 minutes a day, lose weight (if necessary), and quit smoking. Good health is an important part of a person’s human capital. When people “invest” in their health, they reduce the risk of incurring expensive medical bills. If health insurance ends as a result of unemployment, seek alternative coverage through COBRA or the purchase of an individual health insurance policy. To keep costs down when income is reduced, consider purchasing a high-deductible policy.

6. Develop a “Sideline” Income- When you’re concerned that your “day job” might end with a pink slip, it helps to have another source of income. Investigate opportunities to freelance your skills during off-work hours and develop a base of satisfied customers. A sideline business can also provide an opportunity to learn new skills. In addition, there are opportunities to save for retirement in tax-deferred savings plans for the self-employed (e.g., SEP and Keogh plans).

7. Understand “Fallback” Options- In times of crisis and uncertainty, knowledge is power. Some people at risk for financial losses may have viable “fallback” options. For example, even if they don’t want to or plan to retire, older workers may be able to apply for Social Security and/ or pension benefits after losing a job. Before a financial crisis occurs, check your most recent mailed Social Security benefit estimate form and/or the summary plan description (SPD) for a pension plan for details about benefit amounts and qualifications. Also investigate the details of public benefits such as unemployment compensation.

8. Get an Insurance Check-Up- Contact your insurance agent(s) to provide an assessment of your current coverage. Identify gaps in coverage and areas of weakness and consider purchasing policies to address these insurance needs. Common uncovered financial risks include disability, long-term care, and floods.

Schedule

Wednesday, June 30 – Burke County

Thursday, July 1 – Divide County

Friday, July 2 – Burke County

Monday, July 5 – Office Closed

Tuesday, July 6 – Divide County