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Without an Emergency Fund You Are One Missed Paycheck From Disaster

What would it mean to you if you had an unexpected trip to the emergency room? If your car required an expensive repair? What if your income was interrupted for a week, or two weeks, or even longer? Do you have an emergency fund built into your budget to see you through these everyday calamities, or are you only one missed paycheck from disaster?

According to a recent survey released by Bankrate, 63% of Americans do not have the emergency savings to take care of a crisis that costs $1000 or more. How do people handle unexpected expenses? According to the survey:

  • 40% would use savings
  • 23% would reduce other spending to cover the expense
  • 15% would use credit cards
  • 15% would borrow from friends or family

Many said they had no idea how they would cover an unexpected expense of this magnitude.

So what about you? Do you have an emergency fund? It’s really just one more prep that you should put aside for a rainy day.

An emergency fund is a vital prep

When your finances are tight, sometimes your first impulse is to spend every dime.  Many people focus on things like paying off debts, stocking up on food and supplies, or paying more than the minimum payments on bills.

However, that may not be your best bet.  Don’t get me wrong – paying off debt is absolutely vital,  but most experts recommend establishing an emergency fund as the first step back to financial security. There are several reasons why this should be a priority for you:

  • What if you suddenly lost your job and it was 6-8 weeks before unemployment payments began to trickle in?
  • What if your child suffered a medical emergency and you needed to purchase an expensive medication?
  • What if your refrigerator began making a death rattle and you needed to buy a new one immediately in order to save your expensive frozen food stockpile?
  • What if your car, that you needed to get back and forth to work, required a costly repair?

The reasons you might need to tap into an emergency fund are as varied as the news headlines – there are many different disasters that can arise, and nearly every single one of them will require that you have some additional funds available.  You simply cannot call yourself “prepared” if you don’t have currency on hand to see you through the rough spots.

It’s important NOT to rely on credit cards, overdraft, and lines of credit for these unexpected events – these things will cost you far more in interest in the long run. Credit cards are NOT an emergency fund. An emergency fund is currency that you have on hand that will not cost your interest. Don’t make your personal disaster worse than it already is by paying compounded interest on it for the next two years.

How much should be in your emergency fund?

This is one of those numbers that will vary with different families. Most experts recommend a starting point of 1-3 months of expenses. And by expenses, I mean everything from house payments to car payments to projected utilities to food costs.

Don’t underestimate how much it takes to run your household every month – be sure to account for all of the regular expenses you might need to cover during an emergency situation.

In addition to an emergency fund in cash, other prepper items can help see you through a rough spot. Your general supply stockpile and your food pantry mean you have to spend less money on day to day items when times are tough.

When budgets are tight, how can you bankroll your emergency fund?

If you don’t have some rainy day money set aside, it is of the utmost importance that you fund this right away It’s time to change your financial lifestyle.   This isn’t really fun, but the economy is continuing to freefall (despite the blithe reports from the White House and mainstream media). Hardcore frugality is the answer. If you don’t have enough money set aside to weather a crisis, then you need to cut your spending to the bone until you do.

  • Most of us have some places that we can cut the budget. To put it into perspective, a fancy frozen coffee concoction from Starbucks is about $6.  Today,  the price of silver is just under $20 per ounce.   Three and a half days without Starbucks =1 ounce of silver.  Exercise some “tough love” and strip your budget down to the bare bones until you have a months worth of expenses put aside.
  • Sell something.  Do you have a basement full of unused relics? Exercise equipment, old furniture, unused appliances -all of these things taking up valuable storage real estate can help you to establish your emergency fund.  Hang on to things like gold and silver jewelry, though – it will increase in value.
  • Get a second job. You don’t have to plan to work two jobs indefinitely, but spending one day a week babysitting or taking on a different part time job can help you get your savings into the comfort zone.
  • Make only your minimum payments.  I realize this is not the standard financial recommendation, but until you have a one-month rainy day fund set aside, you should forgo making the extra payments even on interest-bearing accounts.
  • Eat cheap for a few months.  If you can manage one cheapo meal a day, this can result in massive savings. Look into different meals that are less than a dollar per serving – generally these will be vegetarian offerings like beans and rice, a bowl of cereal, or eggs and toast. Soup is also a great budget-stretcher.  Cheap doesn’t have to mean unhealthy – we never eat things like Ramen noodles in our family but we manage to have frequent low-budget meals that are tasty and filling. For the love of Pete, don’t eat out – the cost per serving is 5-10 times the cost of making the same dish at home.
  • Get rid of some fixed expenses. If you can get rid of some of your monthly fixed expenses, you can build your emergency fund very quickly. Cancel gym memberships, extracurricular activities, phones, satellite, cable and internet.  Funnel all of that money towards your emergency fund. Once the fund is built, you may discover you didn’t really need those services as much as you thought you did.

What constitutes an “emergency” worthy of dipping into the fund?

Once you have your emergency fund established, you might wonder, “What can I spend this on?”

Ideally, nothing. The goal is never to spend this money.  This little safe full of money squirreled away is there for situations that cannot be addressed with your regular income.

Here are some things that are NOT emergencies:

  • Trips to the mall
  • Concert tickets
  • Vacations
  • Your 346th pair of shoes
  • A celebratory dinner at a nice restaurant
  • Cell phone bill

As yourself a few questions. Will it cost me more money if I do this later rather than sooner?  Is the expenditure related to a safety issue?  Is the expenditure related to a health issue? When will you have the money to pay for this out of your regular income?

  • Refrigerator
  • Car Repair
  • Medication/Medical Bill
  • Washing Machine (not in all situations, but if you have a baby in cloth diapers it’s pretty vital!)
  • Utilities that will result in reinstatement charges

Only you can judge whether or not an event constitutes an emergency.  If you must use money from your emergency fund, make it a priority to replace that withdrawal as quickly as possible.

Make this the year you get your finances under control

If you don’t have an emergency fund, take your preparedness to the next level.   Get financially prepped for those unexpected “rainy day” moments. Then, make a concentrated effort to reduce (or completely get rid of) debt. If a financial disaster were to strike, the less debt you have, the fewer payments you would have to make until you got back on your feet.  Other preps will go a long way toward helping you through a financial emergency, too. Never underestimate the value of a fully loaded pantry.

For those of you with a little bit of money squirreled away,  have you ever experienced an event that made you relieved that you had an emergency fund?  Your comments can be very inspiring to those who are new to preparedness.

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8 Steps to Surviving a Job Loss

A 2014 report on jobs showed some alarming statistics:  1 in 5 Americans have lost their jobs over the past five years and remained unemployed. The US economy is free-falling, and the middle class is taking the hit.

Unless you live in a neighborhood of rainbows and unicorns, it’s a good bet that this has happened to either your family or someone you know.  Sometimes the lay-off is expected, as you see your company’s profits dwindling. Other times, it is completely out of the blue when you get called into the managers office and handed your walking papers.

Either way, when the axe falls, you are reeling in shock. Well, tough love, here: Get ahold of yourself!  The first steps you take can help you to survive until you get a new source of income.

This article is not about how to prep for a personal financial collapse. Hopefully, you’ve already begun creating a food stockpile, socking away an emergency fund, and working towards self-reliance.

I recently wrote about the 3 steps for surviving any disaster, and job loss is no exception. You must ACCEPT that the event has occurred, you must make a PLAN, and you must ACT on that plan. Here are the steps to minimizing the damage to your personal finances when a sudden job loss occurs.

1.) Don’t sign anything right away.

As much loyalty as you may have had to your company, they clearly don’t feel the same sense of loyalty towards you. Many companies will try to get you to sign paperwork right away to “settle the details.”  Trust me when I say, these details will be skewed in their favor, and not yours.  You do NOT have to sign anything while sitting there, stunned at your sudden change in circumstances.  It’s vital that you take the time to read over everything carefully. Your severance package, your 401K, any accrued pension, and unemployment benefits will be at risk.  In some cases, you can negotiate this, even though you are not sitting in the power seat. Don’t commit to any type of agreement while you’re reeling, particularly if they try to coerce you into signing immediately. Regardless of what you may be told, any delay in your unemployment benefits or severance will be minimal.

2. Begin a total spending freeze for a couple of days.

One of the biggest mistakes people make when faced with a shocking job loss is to go on spending as though they still have an income. Perhaps they go and buy something to try and make themselves feel better. Maybe they just continue spending like they always did, with hundreds of dollars going out for kids’ activities, dinners out, and shopping trips.  Just stop.  You need a few days to re-assess your budget and see where you’re at.  You don’t want to regret the expenditures you make right after a job loss. Put yourself on a complete spending freeze for the next few days while you assess the change in your financial situation.

3.) Apply for unemployment benefits.

Unemployment is not welfare. It is something that you paid in to the entire time you were employed. Please don’t feel guilty about taking the money that is rightfully yours. Keep in mind that it can take up to two months for your benefits to start, and that money from your severance package can delay the onset of benefits.  Unemployment is only a portion of what you made when you were employed, so a revamp of the budget is a must.  Make your application immediately so that you know where you stand and when you can expect the money to start coming in.

4.) Create a budget for necessities.

It’s absolutely vital that you drop your expenditures to the bare minimum until you are able to get another stream of income.  You need to take a look at where your money goes and base your new budget on the necessities. Although having a vehicle in each stall of the garage and an iPhone in the hand of every family member is nice, these are not necessary to sustaining life.

  • Water
  • Food (and the ability to cook it)
  • Medicine and medical supplies
  • Basic hygiene supplies
  • Shelter (including sanitation, lights, heat)
  • Simple tools
  • Seeds
  • Defense Items

Absolutely everything above those basic necessities is a luxury.

So, by this definition, what luxuries do you have?

5.) Slash luxury spending.

Reduce your monthly payments by cutting frivolous expenses. Look at every single monthly payment that comes out of your bank account and slash relentlessly.  Consider cutting the following:

  • Cable
  • Cell phones
  • Home phones
  • Gym memberships
  • Restaurant meals
  • Unnecessary driving
  • Entertainment such as trips to the movies, the skating rink, or the mall

6.) Start looking for new streams of income.

You know those people who tell you that it’s easy to find a new job if you wouldn’t be such a snob? Ignore them. The job market of today is not the job market of a decade ago. Jobs are few and far between, and good jobs are as elusive as unicorns in Central Park.  You may need to look at creating your own streams of income, like:

7.) Sell stuff.

All that stuff you’ve been meaning to go through in the basement just might be the key to keeping a roof over your head.  It’s time to start an Ebay account, have a yard sale, or get on Craigslist and start selling things that have just been sitting there for a while.

Your trash might be another person’s treasure.  Instead of regifting those things in your attic, sell them so they can become someone else’s clutter.  You’d be surprised how much money you can make while decluttering your home.

8.) Look for the silver lining.

Although job loss can be terrifying, it can also be the start of something wonderful.

When I lost my job in the automotive industry, I was devastated. As a single mom, how was I going to continue taking care of my two girls with no income?  Instead of being a bad thing, it turned out to be the best thing that ever happened to me. I was able to take the writing I’d been dabbling in for years from a hobby to a full-time job.  I made a conscious decision NOT to search for another job, but to follow my dream of being a writer and editor.  Maybe I succeeded because it was do-or-die time.  There was no option but to make it work. I began writing for other websites, started my own site, and began outlining books. As it turned out, that shocking, unceremonious discussion in the manager’s office was the best thing that ever happened to me.

As it turned out, that shocking, unceremonious discussion in the manager’s office was a turning point in my life. I’ve read many success stories that began the same way. Sometimes what seems like an ending can actually be a new beginning.

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How to Survive When You Can’t Pay Your Bills

Let’s talk about poverty.

I don’t mean the kind you’re talking about when your friends invite you to go shopping or for a night out and you say, “No, I can’t. I’m poor right now.”

I don’t mean the situation when you’d like to get a nicer car but decide you should just stick to the one you have because you don’t have a few thousand for a down payment.

I don’t mean the scene at the grocery store when you decide to get ground beef instead of steak.

I’m talking about when you have already done the weird mismatched meals from your pantry that are made up of cooked rice, stale crackers, and a can of peaches, and you’ve moved on to wondering what on earth you’re going to feed your kids.

Or when you get an eviction notice for non-payment of rent, a shut-off notice for your utilities, and a repo notice for your car and there’s absolutely nothing you can do about any of those notices because there IS NO MONEY.

If you’ve never been this level of broke, I’m very glad.

I have been this broke. I know that it is soul-destroying when no matter how hard you work, how many part time jobs you squeeze in, and how much you cut, you simply don’t make enough money to survive in the world today. Being part of the working poor is incredibly frustrating and discouraging

It is a sickening feeling when you’re just barely hanging in there and suddenly, an unexpected expense crops up and decimates your tight budget. Maybe your child gets sick and needs a trip to the doctor and some medicine. Perhaps a family member is involved in an accident and can’t work for a few weeks. It could be that your car breaks down and you need it to get back and forth to work because you live too far out in the country for public transit.

As our economy continues to crumble, these are the situations going on in more homes across the country every single day. It’s simple to believe that the people suffering like this are just lazy, or not trying, or are spending frivolously. No one wants to think that these things can occur through no fault of the individual.  Why? Because that means these things could also happen to them.

Every time I write about crushing poverty, someone adds the comments section a smug declaration about how people need to get an education, hang on to a job, buy cheaper food…there’s a litany of condescending advice.  I’m sure this article will be no exception, and please, if you’re in the situation I’m describing, let the criticism roll off of you.

The advice I have may not be popular, but let’s talk about prioritizing your payments when you can’t pay your bills.  I am not promoting irresponsibility here. It’s just math. When you have less money coming in than you have obligated to go out, you will not be able to pay all of your bills. It’s that simple.

First, do a quick audit of your financial situation so you can see where you’re at.

This list of priorities assumes that you have some money coming in, but not enough to meet your obligations. When things improve, you can try to catch up, but for now, you simply have to choose survival. I suggest the following order of payments.

1.) Pay for shelter first

Your number one priority is keeping a roof over your head. That roof may not be the roof of the house you are in now, though, if your circumstances have changed and you can no longer afford it.  If you can still manage to pay your rent/mortgage, do so in order to keep your family housed.

If you rent, and your rent is a reasonable price, make this the first payment you make from your limited funds. You really, truly don’t want to be homeless and moving is expensive. Try your best to stay put.

If you own, consider your property taxes and insurance as part of your mortgage, because if you stop paying any of these, your home will be foreclosed on.

If you can’t pay your mortgage, property taxes, and insurance, you have a while before the home gets foreclosed on and you are forced to move out. If this is the case, it’s absolutely essential that you put aside money for the place where you’ll move should you have to leave your home. You’re going to need first, last, and deposits in many cases, particularly since your credit isn’t going to be stellar due to your financial situation. When you are in this situation, it can be difficult to force yourself to save money when so many things are being left unpaid, but if you ever hope to bail yourself out of this situation, you absolutely have to do this.

The laws vary from state to state, (find the specifics for your state here) but basically, this is the timeline:

  • When you make the decision to let your house go back to the lender, you will have a month or two before they send you a notice of default.
  • From that point, you usually have 3 months before the foreclosure proceedings begin. During those 3 months, you should be saving the money you would normally be putting toward your mortgage.
  • At some point, you’ll get a notice to vacate the premises.
  • When this happens, you have two options. You can choose to move to  a different home, or you can file for bankruptcy, if you feel your situation is such that there is absolutely no way out.
  • If you file for bankruptcy, the home can’t be re-sold by the lender for 3 more months, giving you more time to put aside money for your move.

Should we all pay the bills that we have promised to pay? Of course we should. Our word is very important. Remember, though, that the information here is for people who are in a position in which they DO NOT HAVE THE MONEY TO PAY.

So, the bottom line is this: either pay your housing costs or put aside money for future housing as your first expenditure.

2.) Buy food

You have to eat, and so do your children. If you don’t eat, you’ll get sick, and then your situation will be even more dire.

  • Stick to simple, wholesome basics and cook from scratch. Beans and rice have fed many a family.
  • Tap into your inner southerner and make inexpensive, filling meals like biscuits and gravy.
  • Make soup to stretch just a few ingredients to feed a family.
  • Save ALL of your leftovers, even the ones on people’s plates. Add them to a container in the freezer and make a soup from that at the end of the week.
  • Clean up after the potluck at church. Sometimes you can take home the leftovers.
  • Don’t skip meals to stretch your food further. You need your health and your strength to overcome this situation.
  • Go to the library and check out a book on local edibles. Go foraging in the park or in nearby wooded areas.
  • See if your grocery store sells out-of-date produce for use for animals. There’s often a fair bit you can salvage and add to soups or casseroles. (This is the only way we were able to have vegetables and meat during one particularly painful stretch when my oldest daughter was young.)

In a worst-case scenario, food banks are an option as well.

3.) Pay for essential utilities

You should be cutting your utility usage to the bare minimum and using every trick in the book to keep your bills as low as possible.

If your utilities get shut off, it’s going to be difficult to cook from scratch and you won’t be able to keep leftovers from spoiling. You need the water running from your taps to drink, cook with, and clean. Depending on the climate and the season, heat may be vital as well.

If you can’t ay the entire bill, call the utility companies and try to make payment arrangements. If your utilities are shut off, then you will have a hefty reconnection fee on top of the bill.

Another point to remember is that our culture believes it’s absolutely necessary that all homes be plugged in to the utility system. If you have a work-around, like wood heat and hand pumped well water,  and decide that your utilities are not essential, you need to be prepared to face those whose opinions differ. Some cities have condemned homes which are not connected to the grid, and if you have children who are of school age, sometimes a “concerned” teacher or neighbor has been known to report your situation to the child welfare authorities. (Recently an off-grid homeschooling family had their children removed from the home by police.)

4.) Pay for car/work necessities

What must you have in order to keep working? For me, it’s the internet, since I work online.  All of my clients contact me via email and the work I do requires that I be able to send it to them and research things online. I live in the country, so driving to the library on a daily basis would cost more than my monthly internet fees. For another person, this necessity might be the cost of public transit or keeping their vehicle on the road so that they can get to work.  Choose the least expensive options to keep yourself working, but maintain your job-related necessities.

5.) Pay for anything else

After you’ve paid all of the above, if you have money left over, now is the time to pay your other expenses.  These expenses include debt that you’ve incurred, contracts you are involved in (like cell phone plans, etc.)  Choose very carefully how you dole out any remaining money.

  • Keep one phone going, with the lowest possible payment. This is necessary for work, for your children or their school to contact you in the event of an emergency, and as a contact point for your financial situation. Compare the cost of a cell phone, landline, or VOIP phone. Every family member does not require a phone – you just need one. (I actually did go for a couple of years with no phone at all, but I’m uniquely antisocial and had email by which I could be reached.)
  • If it’s at all possible, try to use the snowball method made famous by Dave Ramsey to pay off your debts and bail yourself out of your situation. Being free from debt will allow you to live a much freer life in the future.
  • If paying off debt is not possible, try to make the minimum payments.
  • If the minimum payments are not possible, you may have to default, at least temporarily, on debts.
  • Buy some pantry staples.  If you can add some extra rice or cans of tomatoes to the pantry, it will help see you through this tight situation.
  • Be relentless in deciding what will be paid and what will not. This is not the time for arguments like, “But it’s our only form of entertainment” or “We deserve this one luxury.”  Cut all non-essentials until things improve.
  • Focus on the most frugal options possible.

Things will get better

I’ve been down this road.  I really get it. It saddens me to see people I love in this situation now.

These books can help. I found them to be life-changing when I was broke, and the lessons have stuck with me throughout my adult life. You may be able to find them at your local library.

Finally, if you are in a situation in which you can’t pay your bills, I’m sorry.

I’m sorry about…

  • The embarrassment you feel when you can’t afford to meet someone for coffee
  • The sick feeling of seeing the bills pile up on the counter and not being able to do anything about it
  • The knot in your stomach every time the phone rings and it’s a 1-800 number that you KNOW is a bill collector
  • The stress of knowing you can’t remain in your home
  • The fear that someone will say you aren’t taking care of your kids and they’ll be taken away
  • The humiliation when people don’t understand and think it’s all your fault
  • The hopelessness of watching the bank account empty out the day your pay goes in, and still having a dozen things unpaid
  • The overwhelming discouragement of having fees assessed on top of debts you already can’t pay
  • The anxiety over what tomorrow will bring

It will get better. You’ll find a way to make it work. You just have to survive while you make it happen. Maybe you will pool your resources with another family, or get a raise, or find a cheaper place. But you will find a way.

Life may not be exactly as it was before, but it will be good again.

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