Crunch TimeHow your family can survive a financial crisis
by gina Roberts-grey
We all know the benefits to building a nest egg and being financially responsible. Television commercials, well wishing relatives and financial analysts are all quick to remind that you should have a minimum of six times your monthly expenses in an emergency savings account or fund. While pinching pennies and saving money sounds easy to do, the reality is that the every day expenses of raising a family doesn’t always leave enough money to stash in a savings account.
The cost to raise a child is steadily increasing and the average income of today’s middle-income families is not keeping pace with average expenses. Surprise visits to the ophthalmologist, a new pair of practice sneakers and routine veterinarian bills are just a few of the ordinary expenses that thwart padding your emergency nest egg.
According to Demos, a consumer advocacy group in Washington, D.C., more than sixty four percent of families in North America live beyond their financial means. In August 2005, Demos released the alarming statistic that over the last 25 years, household debt has grown faster than household assets, particularly among lower and middle-income households. Since 1990, revolving consumer debt has more than tripled, from over $238 billion to $735 billion in 2003, while the rate that North Americans are savings money at has plummeted to a record low.
Relying on revolving credit accounts, short term loans and skipping payments have become a tragic way of life for many desperate parents. Add the financial pressure of losing or reducing your household income to an already insurmountable debt and it is easy to understand how a family can quickly find themselves in a financial crisis.
How prepared are you for sudden unemployment or a reduction in your household earnings? If faced with scaling back on expenses, do you know what you should cut and what you should keep? Do you know what benefit options and alternatives are available in the event of a financial crisis?
Don’t wait for the worst to happen
Most of us don’t like to imagine or plan for the worst case scenarios. Imagining how your family will manage and thrive during a financial crisis or what to do in the unfortunate event you’re unemployed can leave parents paralyzed with fear. “It is natural to avoid contemplating devastating scenarios such as facing a wage reduction or unemployment,” says Consumer Advocate and mother, Barbara Klepski of Washington D.C.
Although organizing a plan for potential unemployment, debilitating illness or work reduction might feel uncomfortably fatalistic, experts like Klepski stress that everyone needs to be prepared in the event of a financial crisis. “Knowing that you’re covered before a financial crisis occurs can lessen a great deal of stress and grief,” urges Klepski, “Empowering yourself with education and preparation also replaces some of the fear with calm control.”
Understand all of your options
An injury, illness or reduction in hours or salary may entitle you to temporary, government sponsored supplements. “Many people do not understand the process of filing for and receiving unemployment insurance benefits,” says Janie Marshall, a Claims Processor for the Illinois Department of Employment Services.
Feeling humiliated, confused and angry are just a few of the reasons that many proud parents do not investigate or apply for some of the benefits available to them during a financial set back. Parents like Marie Crabb of Des Plaines, Illinois didn’t realize all of the debt reduction possibilities available for families in the midst of a financial crisis. “I was shocked to learn that my children could qualify for reduced price hot lunches and milk at school,” she openly admits.
Investigate possibilities such as applying for a reduction in property taxes and utility bill obligations to lighten some of your monthly financial obligations. “Asking questions and looking for any means of reducing your monthly financial obligation can help,” Klepski adds.
What you can cut out
With household expenses continually increasing, the loss or reduction of income often requires cutting back on household expenses. The emotional toll of searching for employment, nursing yourself back to health, revising a budget or filing for unemployment insurance can make determining where to begin trimming your expenses difficult.
“When my husband lost his job, I didn’t see how cutting out a few bills that didn’t total very much would help,” shares a humbled Crabb, “I didn’t realize that a little bit here and there would make a difference.”
Although many teens, tweens and even parents can offer a strong argument outlining the numerous reasons they need luxury items such as mobile phones and satellite radio, these should be first on the list of things to trim. “Expenses such as home delivered newspapers, cable or satellite television, professional laundering and morning cappuccinos are great places to begin cutting back,” suggests Certified Professional Accountant and Financial Planner Bob Hendrixson of Baldwinsville, NY.
Look for numerous ‘little’ ways to save even a few dollars, and soon you’ve saved a notable amount of money. Eating fast food and lunches out can be more costly than packing a healthy snack or lunch for your family. Simple steps such as shutting off a computer monitor instead of letting the screen saver run or using a timer to control lights can yield a savings in your utility bill and ease some of your financial burden.
. . . and what you can’t
The rising cost of health care and health insurance premiums urges many to let their medical coverage lapse. “Health insurance, mortgage payments and automobile loans should be among the first items to be paid,” Hendrixson urges. Cautioning that the cost for medical care can significantly exceed the monthly premiums, financial experts like Hendrixson concur that electing to pay for COBRA coverage or purchasing catastrophic coverage to protect your family in the event someone takes seriously ill is a sound move.
Expenses to educate yourself or your children should also be considered vital necessities. “Pursuing additional education can lead to a better paying job and ultimately a stronger financial future,” explains Hendrixson.
“There are so many programs and options to fund an education that help parents who find themselves in a financial emergency,” he adds. Pursuing fair ability options, low interest student loans and grants can defray some educational expenses while still allowing you and your family to pursue an education. SFM
Gina Roberts-Grey is a freelance writer who often writes on the subjects of families and children.