An increase in the price of goods and services can be traumatic. When you have to pay more for things like gasoline, food and health care, other difficulties may arise, especially if you are retired and/or are living on a fixed income. Realizing that your income does not go as far as it used to, even in covering the basics, can be alarming.
An increase in the price of one essential product may trigger an increase in the price of other products and services. For example, an increase in the price of a barrel of oil may result in an increase in the price of gas at the pump. That increase may in turn add to transportation and heating and cooling costs. As price increases continue, it doesn't take long for a consumer to feel the effect, perhaps even to the extent that you have little or no discretionary funds and/or you strain to pay all your bills.
When prices rise, don’t panic, but don’t become complacent, either. Don’t stop credit payments or ignore that you are facing financial difficulties. You need to adjust your spending and develop a spending plan (Budget) to pay bills. Your financial affairs are still within your control. Surviving a financial crisis will take work and planning, but it can be done - and you may even be stronger when the crisis is over. Make an action plan as soon as possible.
Jot down how you spend your income. If you do not already have a good idea of how you spend your money, track your spending for a month or two. This process will give you a good idea about where you will be able to make changes in your spending habits. (See “Methods for Tracking Expenses.”)
Separate your family living expenses into fixed expenses and flexible expenses. Examples of fixed expenses include mortgage payments or rent, installment credit payments, deposits into emergency savings, medical and/or life insurance payments, and utility payments (if on an equal payment plan). Examples of flexible expenses include gasoline, recreation, leisure, food, clothing and personal care spendings. Examine flexible expenses, look for areas where cuts can be made when times are tough. Perhaps family members are meeting wants instead of needs. Can less expensive brands or items be used?
If you are unsure how to plan for your expenses on a short-, medium- and/or long-term basis, the Family Money Manager publication (www.ext.nodak.edu/extpubs/yf/fammgmt/fe222w.htm) has worksheets, suggestions and additional resources that may help.
Many people try to hide financial problems from themselves or family members. Hiding financial difficulties from the rest of the family for long is nearly impossible, and it’s not emotionally healthy to try. Not facing up to problems prevents you from taking positive steps forward.
Because financial decisions affect the whole family, talk with others about the present situation. Let them know about the need to change spending priorities. Involve all family members, regardless of their ages. Include your family in decisions that must be made. As a family, discuss how income is spent, what is important, and what is not so important. What must the family have in the next week? In the next month? In the next two months? You may need to alter plans for taking a vacation or scale back the number of people with whom you plan to celebrate a family event.
Communication is sharing. Don’t burden family members with unnecessary worry, but do involve them; they may offer solutions or ideas you haven't considered.
Communication is listening. Actively listening includes giving full attention to understanding the feelings of another person. Accusing another family member of being responsible for the current economic situation won’t help anyone.
Your expenditures hold the key to how well you do when dollars are scarce. If your family does not follow a Spending Plan, this is the time to start. Family input is essential, so is being both realistic and flexible. Be creative about how to cut expenses. Remember, you want to survive comfortably. Here are some suggestions:
Be a smart shopper. Resolve to prioritize and focus on needs, not wants. Conserve resources by using them wisely. Make your home energy efficient. Consolidate shopping trips to the store.
Become more resourceful. Consider planting your own garden, cooking items from scratch, offering your services for hire.
If you can pay some bills but not all, set priorities. After paying for secured loans and basic essentials, pay those bills that:
Be wary of quick, short-term, high-interest loans. If you miss just one payment, you could become saddled with long-term, high-interest debt payments that seem to never end. An example of this type of debt would be paying off a $500 loan by making 22 monthly payments of $68, which will cost $1,453 (with $953 spent on interest, the interest rate is about 150 percent).
Bankruptcy is not a good option. Financial institutions are also affected by the economy, and as the funds they have available for loans become more restricted, a good credit report for those wanting to borrow money becomes more essential. A bankruptcy will lower your credit rating for years, making it more difficult for you to buy essentials like a home or a car.
Consumer credit counselors offer free financial counseling and can intervene to help you avoid bankruptcy. They will negotiate with your creditors to develop a workable plan for paying off your debts.
Take an inventory of your resources. To help monitor your financial progress, you can use a tool such as the “Family Balance Sheet” (www.ag.ndsu.edu/pubs/yf/fammgmt/fe222c.pdf) to help figure your assets, liabilities and net worth.
Emergency savings are essential. Those attempting to get out of debt may fail to realize that they should have emergency funds available. These funds may help ensure that a debt repayment plan does not have to be postponed for unexpected household expenses or other emergency expenditures.
Reduce consumer debt. Don’t ignore your monthly payments on outstanding loans. Make a list of all your debts. Include in that list each debt’s annual percentage rate, the specific terms of the contract, and any finance charges. Analyze your debt payment options by utilizing a program such as the online program PowerPay (https://powerpay.org). Determine how much you owe to each creditor, then print out a plan for making power payments until you are completely out of debt. Continue making payments to build up your emergency savings to a minimum of three months of expenses.
Check Register Tracking System (HE-471). North Dakota State University Extension Service. Fargo. Available from state specialist.
Gorham, E. What to Do When Your Income Drops (FS-912). South Dakota State University Extension. Brookings. 2006. http://pubstorage.sdstate.edu/AgBio_Publications/articles/FS912.pdf.
Household Account Book (EC 916). South Dakota State University Extension. Brookings. 2004. http://pubstorage.sdstate.edu/AgBio_Publications/articles/EC916.pdf.
Miner, D.F. Jr., and J. Harris. PowerPay: Helping debtors become savers. 2001. https://powerpay.org/.
Pankow, D. Financial Term Guide (FE-222a). North Dakota State University Extension Service. Fargo. 2004. http://www.ag.ndsu.edu/pubs/yf/fammgmt/he222.pdf.
Spending Forecast (FE-222b). North Dakota State University Extension Service. Fargo. 2004. http://www.ag.ndsu.edu/pubs/yf/fammgmt/he222.pdf.
Family Balance Sheet (FE-222c). North Dakota State University Extension Service. Fargo. 2004. http://www.ag.ndsu.edu/pubs/yf/fammgmt/he222.pdf.
What to Do When Your Income Drops (FE-274). North Dakota State University Extension Service. Fargo. 2007. http://www.ag.ndsu.edu/pubs/yf/fammgmt/fe274.pdf
You can control your financial situation if you plan carefully.
Communicate with your family. Together, analyze what is important and decide on a plan of action.
Examine your expenditures. Be prepared to change your standard of living, at least temporarily, so you don’t have to give up essentials.
Don’t default on payments. Contact your creditors, explain your situation and work with them to make adjustments. Some creditors may have hardship programs for those experiencing financial duress. You may qualify for those programs.Begin to make plans for the future.