Surviving Unemployment

Losing your job may be the toughest financial blow you'll ever have to take, yet people do survive unemployment; in fact, they often emerge on firmer financial footing (because they've quickly learned to budget and cut back) and with greater confidence in their abilities. This section shows you how to move from desperation to success.

Sorting Out Severance Packages and Unemployment Insurance
Your first step should be to assess how much money you may still have coming in — usually from two sources: Severance pay (a lump-sump check from your employer) and unemployment insurance.

Many companies don't offer severance packages, so its' certainly not guaranteed. If the company is laying off employees because it is having financial difficulties, you probably wont' be offered any severance pay, but you may be offered a severance package that might include job-placement assistance, continued use of an office so that you still appear to be employed, and freelance opportunities to finish projects that you've been working on. This assistance is not common, however.

If you are offered severance pay, the amount will most likely be based on how long you've worked for the company: A months' pay for every two years worked, for example. If you're offered this pay — six months' worth of income, say — immediately put it away in a safe, interest-bearing account so that it will last you six months (or, perhaps, even longer).

If you're not offered any severance, or if the severance pay is so paltry that it runs out before you've even had your resume printed, you're not alone. Sadly, few companies offer this assistance — those that do are usually companies that have recently merged (and, therefore, have a lot of cash) and have laid off a small part of their staff.

If you were fired from your job because of misconduct, unemployment insurance and COBRA-defined coverage will probably not be available to you. These benefits are meant to assist employees who lose their jobs through no fault of their own.
You're far more likely to receive unemployment benefits, however. The moment you hear you've been laid off, call your states' unemployment-insurance agency. While you may have to visit the unemployment office, some states allow you to file a claim by phone or online.

The amount of your unemployment insurance and the length of time you'll receive it is based on how long you've been employed, the state you live in, and the general economic condition in your area. (In times of severe economic downturn, unemployment benefits are often extended for many more weeks than in relatively healthy economic periods.) Your state's unemployment office will know how many weeks you're eligible for and whether you have any chance of having those benefits extended.

As soon as you find another job, your unemployment benefits will stop. Some states, however, have a self-employment assistance plan that encourages you to start your own business. You receive the same benefits as you would if you were looking for work, but instead of sending out resumes and going on interviews, you're spending your time getting your business started. Ask your state whether a self-employment assistance program is available to you.

Locking In Your COBRA-Defined Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 was designed to help employees who leave their jobs and are, as a result, without medical insurance coverage. If your former employer had 20 or more employees, COBRA allows you to continue medical insurance coverage for up to 18 months after leaving your company.

The fine print? Well, it's a doozy. You have to pay the entire cost of your insurance — the portion you paid before (it was probably deducted from your salary) and the portion your employer paid on your behalf, which may have run several hundred dollars per month. (Your former employer is also allowed to charge you a 2 percent administration fee.) The coverage you receive — including deductibles and limits on coverage — should be identical to the coverage you had as an employee.

When you're laid off, you should receive information about continuing your medical coverage under COBRA. If you don't receive it, ask for it! You usually have 60 days to elect to continue your coverage (and when you sign up, the coverage is retroactive to your last day on the job) and pay the first payment. If you fail to make the payments, which are usually due monthly, the coverage will be terminated.

Before deciding whether to accept COBRA coverage, call around or search on the Internet for short-term health-care coverage. If you're willing to go with a high-deductible plan (which means that you don't get any benefits until your medical expenses total a ridiculous amount, but you're covered up to a few million dollars if a catastrophe occurs), you may be able to pay hundreds less per month for insurance and still have coverage if a catastrophe occurs.

It's no small irony that when you can least afford to pay the entire portion of your medical insurance costs, you have to, in order to continue your coverage. However, if you're tempted to just go without insurance, don't! Doing so may turn a bad financial situation into a catastrophic one.
Many conditions, including pre-existing ones and pregnancy, aren't covered (or aren't covered until a year after the policy begins), and a few of these policies can't be renewed after they expire (usually in six to nine months).

COBRA's biggest benefit could be that even though it expires 18 months after you sign on, if you still haven't found work, you're eligible for insurance policies that aren't allowed to exclude pre-existing conditions.


Seeing to Your Other Insurance Need
If you're able to lock in COBRA insurance for the next 18 months, you have one major insurance need taken care of, even if it is frighteningly expensive. But you want to think about your other insurance coverage as well, especially insurance that may have been covered by your employer and insurance that you may be tempted to let lapse while you're unemployed.

Employer-Sponsored Insurance

Your employer may have paid for life, disability, dental, and vision insurance, in addition to medical coverage. Of these, life insurance is the one that's most important to secure while you're unemployed.

Some people think of life insurance as a way to leave great wealth to their children or spouse upon their death, but for most people, life insurance is simply a way to help your family pay for funeral costs and get through a year or so without your income.

Many people, therefore, buy enough coverage to pay funeral expenses, pay off the mortgage, and pay for one or two months of income or unemployment benefits. Funeral expenses vary by area — call your local funeral home for an estimate.

You can find out your mortgage balance by calling your mortgage lender and asking for the payoff amount. Use WORKSHEET 12-1 to see how large your life-insurance policy should be.

WORKSHEET 12-1

Amount of Life Insurance Needed

Funeral expenses:

$

Mortgage payoff:

$

Monthly income or unemployment benefits:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Insurance You've Been Paying For

Your employer has probably had nothing to do with your homeowner's or apartment insurance and car insurance. When you're unemployed, you want to keep those insurance policies intact, although this is a good time to shop around for a better price and, if necessary, higher deductibles.

You may also have had a retirement plan at your company. For now, don't feel that you need to do anything with this plan, unless you think your company might be in danger of declaring bankruptcy. Otherwise, let it sit until you've had a chance to figure out your next move.
Most states won't allow you to let your auto insurance lapse (they'll eventually take away your license plates), and most lenders won't allow you to let your homeowner's insurance lapse (they'll cancel the mortgage and force you to sell your house).

Although this may seem intrusive on their part, consider what would happen if you had a fire in your house and didn't carry insurance. The mortgage company wouldn't have a house to sell in order to recoup their loan, so they would make you pay that loan in full immediately.

Don't let unemployment go from bad to worse by not maintaining some insurance coverage for your house and car.

Paring Your Expenses Down to the Bone

Now that you have a sense of what your income might be for the next few weeks and have discovered the cost of paying for your insurance policies, you can create a bare-bones budget that you'll live on until you find your next job.

Your next step is to eliminate every single unnecessary expense so that, even with the increase in medical insurance payments (and, potentially, other insurance premiums, too), you can make your unemployment insurance (plus any savings you may have) last as long as possible.

This is your time to experience living like a monk. Unless you can show directly how spending money will get you another job, put away your credit cards and begin a period of absolutely no discretionary spending.

If your company offers job-hunting assistance, use it, even if it's not the greatest service or assistance available. If nothing else, beginning your job hunt the day after you are laid off doesn't give you much time to worry or get too angry.

Both emotions are, of course, perfectly normal reactions to losing your job, but both can also paralyze you. Take the time you need, but if you find yourself unable to get out of bed or unwilling to get off the couch, you may be letting your emotions keep you from getting that next interview.

Looking for a job — especially if you use an office or other location (away from your home) that's been set up for you — gets you out of the house, dressed professionally, and ready to look for your next course in life.

In fact, that's often the best approach when job hunting: Treat your job search as though it's your full-time job. Use any facilities your company has provided for you, which may include office space with a telephone, copy machine, computer and printer, resume consultation service, and so on.

If, on the other hand, you aren't offered any job-searching assistance from your company, you can use the same ideas to find your next job.

If you don't have a top-notch resume and don't have access to any free services that offer resume assistance, take a trip to your local library to review its books on resumes and cover letters, especially those that discuss the best ways to submit them electronically.
If you need to get out of the house while searching the Internet or newspapers, visit your local library or the FedEx Kinko's copy center in your area. When you do go out, dress professionally and set goals for the day, such as, “I'll find and follow up on three leads today.”

WORKSHEET 12-2

A Bare-Bones Budget

Monthly Expense

Amount

Ways to Reduce

New Amount

Groceries and household items

$

$

Day care

$

$

Contributions

$

$

Savings

$

$

Rent on furniture or appliances

$

$

Entertainment/babysitting

$

$

Eating out

$

$

Rent or mortgage

$

$

Car payment or lease

$

$

Electric bill (average)

$

$

Gas bill (average)

$

$

Water bill

$

$

Sewer bill

$

$

Trash pick-up bill

$

$

Cable/DSL/satellite bill

$

$

Telephone bill

$

$

Cell phone bill

$

$

Bank charges

$

$

Haircuts/manicures/pedicures

$

$

Home equity loan

$

$

Other loan

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Child support or alimony

$

$

Car maintenance

$

$

House maintenance

$

$

Auto insurance

$

$

Property taxes

$

$

Gifts

$

$

Events to attend

$

$

Clothing and shoes

$

$

Home insurance

$

$

Vehicle registration

$

$

Vacation

$

$

Club membership

$

$

Club membership

$

$

Club membership

$

$

Other:

$

$

Other:

$

$

TOTAL:

$

$

Never pass up the opportunity to network! Although you may prefer that people not know you've lost your job, the people you run into at the coffee house, your daughter's basketball game, or a social gathering with your spouse may be able to help you find your next job.
When searching online, search first for job-listing services that are specific to your industry. For more general searches, go to Monster.com, Yahoo! Hot-Jobs, CareerBuilder, and craigslist.

Also, don't forget the classified ads in and website for your local paper.

Starting a Consulting Firm or Small Business
Many laid-off or downsized employees use their misfortune to springboard into a career they've always wanted, as a consultant or small business owner. There are, however, some important points to consider.

Wait to Pursue Big-Business Dreams

If your plans for a business are large in scope — say, you want to open a retail store or open a large consulting firm — being unemployed may not be the best time to establish your business. For a large business that's going to have a lot of overhead (rent, inventory, equipment), you're going to need money, either from a lender or from investors.

Unless you received a large severance package or have plenty of money in savings that you could give up as collateral (a guarantee for the lender), you're probably not going to qualify for an influx of cash from a lender or investor while your future is so uncertain. That doesn't mean your big-business plans are impossible, but you'll have a better chance of success if you keep your plans small.

Keep Your Plans Small

Concentrate your self-employment plans on the lowest-overhead business that appeals to you.

Plan, for now, to be the only employee (or work with a few other self-employed professionals who also have their own businesses), so that you can eliminate complicated withholding taxes and paperwork and can work out of any spare space in your home.

Keep your overhead to a minimum, buying only the items that you absolutely need to run the business. (You can purchase more for your business later, as it grows and prospers.)

Considering Another Geographic Location

If you're struggling to find work in your immediate area, you can always expand your prospects by branching out into another geographic area. This sounds simple, right? Unfortunately, it isn't.

Finding out about out-of-town positions is easier than it has ever been, thanks to the Internet. Actually landing the job, however, can be much more difficult. In general, employers in other geographic locations find that out-of-towners are expensive to hire and often flee back to their home area the first chance they get.

To make yourself a more attractive candidate in the eyes of an out-of-town employer, consider the tips in the following sections.

Job-searching websites are easy to use and list thousands of jobs (usually by the dates they were posted, so you always know how hot the lead is). If you're interested in taking on work nearly anywhere in the United States, make a point of checking these sites every morning, searching by city, if possible.
Clarify That You're Not Expecting Relocation Assistance

The main fear of out-of-town employers is that you're going to expect relocation assistance if they offer you a job.

That assistance can include the costs of house hunting in advance of the move, the move itself, help selling your house (including, but not limited to, actually buying your house from you if it doesn't sell), help finding employment for your spouse, paid trips back to tie-up loose ends, and so on.

These costs can be incredibly expensive even for large companies, so put their mind at ease by indicating in your cover letter that you're planning to pay for your own move and will not require any relocation assistance.

Say You'll Pay for Interview Expenses

If you were happily employed and had the leisure of weighing out-of-town job options, you might expect to be flown out for an interview. But given that you want to find work immediately, mention in your cover letter that you plan to pay for your own interview expenses (driving or flying out, staying in a hotel, paying for meals, and so on).

One way to get out-of-town employers to respond quickly is to let them know that you'll be in the area on a certain date — say, four or six weeks out — and that you'd like to set up an interview at that time. This gives the company a chance to see you in person, but it also forces them to interview you on a timely basis.
Indicate That You're Moving Regardless

Even if you aren't planning to move without a job, make your cover letter sound as if you're definitely relocating to the area and are looking for employment in advance.

This, combined with your readiness to pay for your own interview and relocation expenses, may make you as attractive as an in-town candidate.

Be sure to mention all of the non-work-related reasons that you're moving to the area. (Hint: Make up some of these reasons if you don't have any!)

Read more »

Surviving Unemployment

Losing your job may be the toughest financial blow you'll ever have to take, yet people do survive unemployment; in fact, they often emerge on firmer financial footing (because they've quickly learned to budget and cut back) and with greater confidence in their abilities. This section shows you how to move from desperation to success.

Sorting Out Severance Packages and Unemployment Insurance
Your first step should be to assess how much money you may still have coming in — usually from two sources: Severance pay (a lump-sump check from your employer) and unemployment insurance.

Many companies don't offer severance packages, so its' certainly not guaranteed. If the company is laying off employees because it is having financial difficulties, you probably wont' be offered any severance pay, but you may be offered a severance package that might include job-placement assistance, continued use of an office so that you still appear to be employed, and freelance opportunities to finish projects that you've been working on. This assistance is not common, however.

If you are offered severance pay, the amount will most likely be based on how long you've worked for the company: A months' pay for every two years worked, for example. If you're offered this pay — six months' worth of income, say — immediately put it away in a safe, interest-bearing account so that it will last you six months (or, perhaps, even longer).

If you're not offered any severance, or if the severance pay is so paltry that it runs out before you've even had your resume printed, you're not alone. Sadly, few companies offer this assistance — those that do are usually companies that have recently merged (and, therefore, have a lot of cash) and have laid off a small part of their staff.

If you were fired from your job because of misconduct, unemployment insurance and COBRA-defined coverage will probably not be available to you. These benefits are meant to assist employees who lose their jobs through no fault of their own.
You're far more likely to receive unemployment benefits, however. The moment you hear you've been laid off, call your states' unemployment-insurance agency. While you may have to visit the unemployment office, some states allow you to file a claim by phone or online.

The amount of your unemployment insurance and the length of time you'll receive it is based on how long you've been employed, the state you live in, and the general economic condition in your area. (In times of severe economic downturn, unemployment benefits are often extended for many more weeks than in relatively healthy economic periods.) Your state's unemployment office will know how many weeks you're eligible for and whether you have any chance of having those benefits extended.

As soon as you find another job, your unemployment benefits will stop. Some states, however, have a self-employment assistance plan that encourages you to start your own business. You receive the same benefits as you would if you were looking for work, but instead of sending out resumes and going on interviews, you're spending your time getting your business started. Ask your state whether a self-employment assistance program is available to you.

Locking In Your COBRA-Defined Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 was designed to help employees who leave their jobs and are, as a result, without medical insurance coverage. If your former employer had 20 or more employees, COBRA allows you to continue medical insurance coverage for up to 18 months after leaving your company.

The fine print? Well, it's a doozy. You have to pay the entire cost of your insurance — the portion you paid before (it was probably deducted from your salary) and the portion your employer paid on your behalf, which may have run several hundred dollars per month. (Your former employer is also allowed to charge you a 2 percent administration fee.) The coverage you receive — including deductibles and limits on coverage — should be identical to the coverage you had as an employee.

When you're laid off, you should receive information about continuing your medical coverage under COBRA. If you don't receive it, ask for it! You usually have 60 days to elect to continue your coverage (and when you sign up, the coverage is retroactive to your last day on the job) and pay the first payment. If you fail to make the payments, which are usually due monthly, the coverage will be terminated.

Before deciding whether to accept COBRA coverage, call around or search on the Internet for short-term health-care coverage. If you're willing to go with a high-deductible plan (which means that you don't get any benefits until your medical expenses total a ridiculous amount, but you're covered up to a few million dollars if a catastrophe occurs), you may be able to pay hundreds less per month for insurance and still have coverage if a catastrophe occurs.

It's no small irony that when you can least afford to pay the entire portion of your medical insurance costs, you have to, in order to continue your coverage. However, if you're tempted to just go without insurance, don't! Doing so may turn a bad financial situation into a catastrophic one.
Many conditions, including pre-existing ones and pregnancy, aren't covered (or aren't covered until a year after the policy begins), and a few of these policies can't be renewed after they expire (usually in six to nine months).

COBRA's biggest benefit could be that even though it expires 18 months after you sign on, if you still haven't found work, you're eligible for insurance policies that aren't allowed to exclude pre-existing conditions.


Seeing to Your Other Insurance Need
If you're able to lock in COBRA insurance for the next 18 months, you have one major insurance need taken care of, even if it is frighteningly expensive. But you want to think about your other insurance coverage as well, especially insurance that may have been covered by your employer and insurance that you may be tempted to let lapse while you're unemployed.

Employer-Sponsored Insurance

Your employer may have paid for life, disability, dental, and vision insurance, in addition to medical coverage. Of these, life insurance is the one that's most important to secure while you're unemployed.

Some people think of life insurance as a way to leave great wealth to their children or spouse upon their death, but for most people, life insurance is simply a way to help your family pay for funeral costs and get through a year or so without your income.

Many people, therefore, buy enough coverage to pay funeral expenses, pay off the mortgage, and pay for one or two months of income or unemployment benefits. Funeral expenses vary by area — call your local funeral home for an estimate.

You can find out your mortgage balance by calling your mortgage lender and asking for the payoff amount. Use WORKSHEET 12-1 to see how large your life-insurance policy should be.

WORKSHEET 12-1

Amount of Life Insurance Needed

Funeral expenses:

$

Mortgage payoff:

$

Monthly income or unemployment benefits:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Other amount needed:

$

Insurance You've Been Paying For

Your employer has probably had nothing to do with your homeowner's or apartment insurance and car insurance. When you're unemployed, you want to keep those insurance policies intact, although this is a good time to shop around for a better price and, if necessary, higher deductibles.

You may also have had a retirement plan at your company. For now, don't feel that you need to do anything with this plan, unless you think your company might be in danger of declaring bankruptcy. Otherwise, let it sit until you've had a chance to figure out your next move.
Most states won't allow you to let your auto insurance lapse (they'll eventually take away your license plates), and most lenders won't allow you to let your homeowner's insurance lapse (they'll cancel the mortgage and force you to sell your house).

Although this may seem intrusive on their part, consider what would happen if you had a fire in your house and didn't carry insurance. The mortgage company wouldn't have a house to sell in order to recoup their loan, so they would make you pay that loan in full immediately.

Don't let unemployment go from bad to worse by not maintaining some insurance coverage for your house and car.

Paring Your Expenses Down to the Bone

Now that you have a sense of what your income might be for the next few weeks and have discovered the cost of paying for your insurance policies, you can create a bare-bones budget that you'll live on until you find your next job.

Your next step is to eliminate every single unnecessary expense so that, even with the increase in medical insurance payments (and, potentially, other insurance premiums, too), you can make your unemployment insurance (plus any savings you may have) last as long as possible.

This is your time to experience living like a monk. Unless you can show directly how spending money will get you another job, put away your credit cards and begin a period of absolutely no discretionary spending.

Read more »

Freezing Your Spending for the Short Term

If your spending is getting the best of you and creating more and more debt for your family, try freezing your spending for the next several months. Freezing your spending isn't easy, but it can stop your accelerating debt dead in its tracks.


What Freezing Really Means
Freezing means going cold turkey on your spending — you temporarily stop buying. For the short term, you cut out all but the most essential spending; your cuts will include personal appliances, home appliances, clothing, shoes, CDs, DVDs, decorative items, linens, computer accessories, and so on.

You freeze your spending for a predetermined amount of time — usually six to twelve months — and just stop shopping. Of course, you can still buy groceries and the required supplies for your home, but you don't buy anything else.

Reducing Temptation During a Freeze
People who temporarily freeze their spending usually find that the best way to stay the course is to steer clear of opportunities to spend money:

Don't read the ads that come in the Sunday paper.

Don't stop at outlet malls when you travel.

Dispose of all the catalogs you have in your possession.

Call all the companies that send you catalogs and have them both remove your name from their mailing lists and stop selling your name to other companies.

Don't visit Internet sites that sell products.

Don't go to the shopping-mall food court for a quick meal.

Don't meet friends for an afternoon at the mall or any other store.

Don't go window shopping at an appliance, music, or computer store.

Discontinue any music or book clubs, even if you have to buy your remaining required purchases to do so.

When grocery shopping, don't inadvertently wander into the consumer-goods section of the store.

Send gift certificates instead of actual purchases as gifts, so that you don't have to go to a store or browse a catalog or Web site.

The following sections will help you freeze your spending a little less painfully.

Establishing What's Really a Need
Understanding the difference between a need and a want is really the crux of sorting out your financial difficulties. In an effort to make ourselves feel better about being consumers, we continually elevate wants to the level of needs. But we actually have few needs, at least in the realm of products that you can buy:

Shelter
Clothing
Food and water
Thousands of years ago, this list meant a mud, straw, or wooden hut, along with some animal skins and just enough calories to survive. Today, we have escalated these basic human needs, and they have become so intertwined with wants that we're not sure how to separate them.

Yes, you need shelter, but you do not need a four-bedroom home with a formal dining room, a fireplace in the great room, a three-car garage, a kitchen with cherry cabinets, and a bonus room over the garage. That's a want.

The same is true for clothing. Humans need a way to stay warm and dry, but they do not need ten suits or eight pairs of jeans. Those are wants.

And while everyone needs food and water to survive, that food does not have to come from a five-star restaurant. You also only need enough calories to survive, not enough to add three to five pounds each year, as the average American does.

The desire to own and consume is very strong in Americans, and it enables us to justify nearly any purchase in the name of needs. Don't buy into it. Instead, use WORKSHEET 5-1 to list every need you have (you might want to use a pencil, though, and keep a good eraser handy). Be very specific in your list: Don't just list “house”; instead, write a description of the house you need and the amount it will cost.

WORKSHEET 5-1

Needs Versus Wants

Need (Description)

Cost

Consequences of Not Buying

$

$

$

$

$

$

$

$

$

Identifying the Consequences of Not Meeting a Need

After you've listed all your needs, identify what would happen to you if you didn't get each one, asking yourself the following questions:

Would you or others around you die?

Would you or others suffer physical pain or extreme physical discomfort?

Would your health or the health of others suffer in the long term?

Do you know for sure that you would lose your job without this item?

If none of these would happen, it isn't a need, it's a want, and you have no business buying it during a spending freeze. Remember this the next time your mind tries to talk your wallet into giving in.

Establishing — and Sticking to — a Shopping List for Your Needs

Before you leave the house and head out to spend money, write out a shopping list of your needs (which are likely to include only groceries and toiletries). Be sure that they're needs, and don't pad the list because you're in the mood to buy. Keep in mind that you are probably feeling deprived, so you may try to satisfy your spending itch by splurging on groceries and toiletries.

Don't justify veering from the list because something is “such a good deal.” Instead, remember that the best possible deal is to spend $0, so even if an item is half price, you can't buy it unless it's on your list.
Before you leave for the store, write down everything you need to get, and also scribble in an estimate of how much each item will cost. Then total the bill.

If it's less than you planned to spend, stop writing out your list and immediately go to the store. If the total is more than you planned to spend, begin crossing items off your list before you go, until you get down to the budgeted amount.

Then, buy only the items on the list. Don't add items to the list and then cross them off while you're standing in the checkout lane. Instead, stick absolutely to your list.

If you see something you're sure you need but it isn't on your list, put it on next week's list when you get home. Today, you can buy only what's on your list. Be vigilant about this process, and you'll never overspend on groceries and toiletries again.

Putting Away Your Credit Cards

No, seriously, put them away for at least six months. Put them in a safe place that's hard to get to, such as a safe-deposit box at the bank (which will probably cost around $20 per year, an amount that's worth spending if it keeps you from getting further into debt). The farther away the credit cards are from you, the better.

For six months, pay for all of your day-to-day purchases with cash and pay your bills with a check. When you're shopping for purchases that are allowed — such as groceries and toiletries — write out a list before you go, estimate how much you'll need, and take no more than $10 over that amount.

When you're not supposed to be making any purchases, limit the amount of cash you carry around to $5 and a few quarters. That will allow you to pay for parking if you need to, but not lunch or a flat-screen TV!


Tucking Away Your Debit Card
Although a debit card is technically like cash or a check, in reality it feels much more like a credit card. Because you don't hand over cash, you may feel as though you're not really paying for this purchase, much like when you use a credit card.

And if those funds are earmarked for other needs (like paying off your debt or saving for a vacation), you'll end up without enough money to meet your needs by the end of the month.

If you take $80 in cash to the grocery store, you'll be very careful not to exceed that amount with convenience foods. But if you take a debit card, you're not likely to be nearly as careful. Put the debit card in the same place you put the credit cards — your best bet is in a safe-deposit box.

Creating a Wish List

A wish list is an outlet for your hot little fingers and creative mind while you're in a spending freeze. The basic idea is that you write down everything you'd ever like to buy. The list may range from a new TV to whitening strips for your teeth to a sailboat. Anything you're not allowed to buy during a spending freeze is fair game. Nothing on the list has to be sensible or practical or a wise financial decision.

Sometimes when you're not spending, you feel disconnected from our consumer-oriented society, and a wish list makes you feel like your old self again. When you feel the itch to spend, go online or look at a friend's catalogs and write down the item number, description, page number, and so on of any item that looks interesting.

Act as if you're really going to buy the item. But don't. Just add the item to your list and let the list sit for a while. The act of writing the item down will feel, strangely enough, very similar to how you feel when you actually buy something. It sounds completely crazy, but it works!

When you brainstorm your wish list, think pie-in-the-sky. You're just daydreaming right now — later, you can make your list more realistic. So write down whatever you can imagine in your future. But make sure it's your wish list. Don't put a sailboat on your list if you really don't like water!
Paring Down the Wish List

Just listing the items can be cathartic when you want to buy, buy, buy. But listing the items on WORKSHEET 5-2 can also help you cross some items off the list. When you write down an item's name and cost, also check off one of the three needs categories: “Need Today,” “Need This Month,” or “Would Like Someday.” If none applies, don't check anything off.

Tomorrow, revisit any item that you indicated you needed today. Is the need still strong? In a month, review any items that you needed this month, and also look at the items that you'd like someday. Do you still feel strongly about them? Cross off any item you no longer feel you need and/or check off new categories for some items.

WORKSHEET 5-2

Your Wish List
Item Name

Cost

Need Today?

Need This Month?

Would Like Someday?

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Reviewing a Sample Wish List

Your wish list may look like TABLE 5-3:

TABLE 5-3

Sample Wish List
Item Name

Cost

Need Today?

Need This Month?

Would Like Someday?

Smoothie maker

$30

✓

Honda Element

$26,000

✓

Garden arbor

$275

✓

New luggage

$350

✓

Two pairs of jeans

$130

✓

iPod

$249

✓

Cabin in the woods

$210,000

✓

Now, suppose 30 days have gone by, and the list looks like TABLE 5-4:

TABLE 5-4

Sample Wish List, Round Two
Item Name

Cost

Need Today?

Need This Month?

Would Like Someday?

Smoothie maker

$30

✓

Honda Element

$26,000

✓

One pair of jeans

$65

✓

iPod

$249

✓

Cabin in the woods

$210,000

✓

TABLE 5-5

Sample Wish List, Round Three
Item Name

Cost

Need Today?

Need This Month?

Would Like Someday?

Smoothie maker

$30

✓

One pair of jeans

$65

✓

iPod

$249

✓

At this point, you've narrowed your list to items you would clearly like to own and can begin to save for when your spending freeze is over. You also have a ready-made list if anyone asks you what you really want for your birthday.

Read more »

Adding Income

If you've reduced your expenses as much as you can and still have trouble finding the money to reach your financial goals, consider temporarily or permanently adding to your income and putting that money toward your debts or into savings.

Recognizing What Additional Work Can Mean for You

Extra work can be both a blessing and a curse. Extra income can help you pay off nagging debts that you just can't seem to get anywhere with any other way. Working a second job can also help you build new skills that could lead to a different full-time job or a new business of your own.

And nearly anyone can put up with a crazy schedule for a few weeks or even a couple of months, especially if you know exactly when the long hours will end and can count down the days — and add up your extra income.

But managing a heavy workload isn't easy. You have to juggle your responsibilities at home, your relationships with the people who are important to you, and your need for rest and relaxation with your new requirements on the job.

Before trading in your time for money, be sure you can't cut back on your expenses enough to gain the extra money you need. Consider adding income only as a last resort.
The following sections help you define the pluses and minuses of additional work, and give you some tips for smoothing the rough road ahead.

New Skills That May Lead to Different Work

One approach to choosing your second job is to look for one that builds your skills in a way that will help further your career. Suppose, for example, that you don't have any computer skills at all. You see an advertisement for a job that requires 15 hours of work each week at your local library reshelving books.

But you also know that the library's checkout system is completely computerized, so at your interview, you ask whether you would be able to spend a few hours a week learning the system and, at some point, helping patrons use the system, too.

Within just a few months, you may develop enough computer skills to be able to update your resume and apply for a completely different day job — one that requires a basic knowledge of computers — with your current employer or with a new one.

A Foundation for Starting Your Own Company

If you're hoping to go into business for yourself and want extra income to pay off debts before you start the company, or as a cushion against uncertain income, you can start your business on a very part-time basis — perhaps on evenings and weekends — and build both a client base and a reputation before you go into the business full time.

Suppose, for example, you're thinking of starting a landscaping company. Using the additional evening daylight hours in the summer months, you could begin your landscaping business during evenings and weekends. Let your coworkers, friends, and neighbors know about your new business, and let word spread about your great product or service. As your business picks up, you can begin to cut down your hours at your other job or quit that job altogether.

If your new business will compete with the company you work for, take extra care. Don't advertise at work and be sure never to use your company's equipment or ideas for your own business. And never work for yourself when you're on company time.
Besides landscaping, some business ideas that might lend themselves to evenings and weekends include catering, photography, graphic design, Web site design, furniture refinishing and repair, selling antiques, home remodeling and repair, closet and room organizing, dog training, tutoring, selling cosmetics, and so on.

Far Less Available Time

The hours you spend working more will have to come from somewhere. Unless you have hours and hours of unfilled free time right now, your additional work is probably going to keep you from spending time with your family, running errands, exercising, futzing with your house or car, visiting friends and extended family, taking a vacation, working on your hobby, reading, playing with your pets, and so on.

This isn't trivial — remember the saying, “All work and no play makes Jack a dull boy”? Working too much can dull your senses, making life seem as though it revolves around work, when, in fact, a healthy life revolves around the people and events that make you happy.

Always include your family in your plans to work additional hours. Not only will they miss spending time with you, they'll probably also be asked to pick up some of your chores around the house, so they deserve to be included from the start.
If you're planning to add extra income for a short time — say, until your $6,500 credit card debt is paid off — you can plan ahead with friends and family, agreeing, perhaps, that they'll help you by running some of your errands while you're working to pay off this debt. You may also be able to agree that as soon as the debt is paid off, you'll quit earning the extra income and immediately spend more time with them, maybe even by taking a well-deserved vacation.

Although the thought of extending your extra income indefinitely may seem like a wise financial choice, keep in mind that life isn't all about work — if you do nothing but work and make money, you'll be likely to either lose the valuable parts of your life or burn out on your existing jobs and begin to dread them.

If you're planning to add extra income for a longer time — perhaps taking on a higher-paying job that requires far more working hours — try to find ways to gain back some of your free time. Move closer to work, hire someone to help with errands and chores, exercise or meet with friends before work or during your lunch hour, listen to books on tape while you drive, take fun vacations, and so on. Then when you are home, be fully in the moment, not working, thinking about work, or preparing for the next day of work.

If you're adding work temporarily — for a few weeks or months — you can probably survive this additional stress without damaging your health or relationships. But if you plan to continue to work a lot, find ways to reduce stress and continue to connect with those around you.
Added Stress

Working too much taxes you physically and emotionally, and that can make you fatigued, subject to illness and injury, and irritable, none of which makes you a very good companion, parent, or friend.

In addition, if your work is highly mental in nature, you may suffer mental stress that can rob you of your ability to converse intelligently and work on detailed hobbies or other projects during your down time.

Higher Taxes

Ben Franklin said that “a penny saved is a penny earned.” Technically, though, he should have said that a penny saved is about 1.20 cents earned, because taxes can eat up that much (or more) of your earnings. If, on your current income, you can find a way to cut $10 from your expenses, you'll have $10 more to put toward paying off debt, into savings, into your retirement account, and so on. But if you work more, you'll have to earn between $12.50 and $13.25, which will get you about $10 after taxes, to pay off $10 from your debt or add it to your savings account.

Because of taxes, it's always more efficient to make the same income — or even to make less income — and cut your expenses than it is to add more income. Using a tax calculator, fill out WORKSHEET 11-1 to see just how taxes take a bite out of your extra income.

WORKSHEET 11-1

Does Extra Income Equal Extra Taxes?

Income

Total Taxes Due

Current

$

+ $500

$

+ $1,000

$

+ $2,000

$

+ $3,000

$

+ $5,000

$

+ $10,000

$

+ $15,000

$

+ $20,000

$

+ $25,000

$

+ $30,000

$

Changing Jobs
One of the simplest ways to increase your income is to look for a new full-time job. In fact, many job counselors advise their clients to look for new work every few years as a way to boost their income (and increase their contacts within the industry).

If you receive a 3–5 percent raise every year at your current job, you'll have to work about two to three and a half years before your income goes up by 10 percent. But you may be able to get a 10 percent raise next month by getting a job at another company.

If you do change jobs, however, be sure the new job — with its higher income — doesn't end up costing you more. It could, if the new job is ten miles farther away, requires expensive clothing that must be dry-cleaned, doesn't offer free parking, requires that you carry a cell phone or laptop computer at your cost, and so on.

Before accepting a job offer, ask detailed questions about your new responsibilities and the costs that may be involved. If your new job is with your existing company, don't shy away from asking these same questions. Different departments within large corporations often require different dress codes and standard equipment.

Getting a Second Job
Getting a second job can help boost your income, and can be fun at the same time. To make it as enjoyable as possible, try to find work that suits your personality and interests.

If, for example, you have a great love of photography or athletics, consider getting a second job at a camera shop or at an athletics store or gym. If you tend to be outgoing, try to find work that allows you to interact with people. If you're shy, consider working behind the scenes at a company that interests you, instead of having to work with people. By matching your personality and interests to your second job, the extra work may not seem as difficult to endure.

One of the best times to find a second job in retail is during the holidays. Companies hire seasonal employees from the week of Thanksgiving through the New Year.

At that point, you're usually out of a second job, but if you've worked out well for the company and express interest in continuing to work for them, you may be called back for the next holiday season and at various times throughout the year.

Working Overtime
Unless you are a salaried employee who is expected to work as many hours as necessary to complete your work, you may have opportunities to work overtime at your current job to earn additional income.

One of the best perks of working overtime is that you're usually eligible to receive more pay per hour for hours over 40 per week — sometimes as much as time and a half or double time. That can add up to a lot of additional income in just a short amount of time.

Be aware of the overtime commitments that your company may require, however. Some companies expect you to commit to working overtime for a set period, even six months or a year, before they'll allow you to sign on.

And the time required may be open-ended, so that you're getting home at 6:30 P.M. one day and 8:00 P.M. the next. Before accepting this opportunity for additional income, be sure you're clear on exactly what's involved.

Freelancing for Your Own Company
Although freelancing is similar to working overtime because you're doing work outside of your normal working hours for the company you already work for, it's a little different.

In general, freelancing involves taking on a project that no one within the company has the time (or the expertise) to complete. It can involve projects from typing a handwritten manuscript or sewing a banner to creating a graphics-heavy company brochure or catering a company event. You work on the project in your spare time, usually on your own equipment at home.

Freelancing allows you to use your unique skills and talents to earn extra money.

Freelancing on a particular project doesn't lock you into working extra hours for an indefinite period of time.

Freelancing can improve your reputation with your current employer, especially if you're able to come through on a difficult or time-sensitive project.

Freelancing can spin off into a full-time gig if you're able to find more clients in addition to your current employer.


Starting a Small Business
Starting a small, home-based business is one of the hottest trends in the United States today, but it doesn't have to be a full-time investment if you don't want it to be.

If you're trying to find a way to earn extra cash but want some control over how and when you work, starting a small business from your home might be just what you're looking for.

The following sections help you answer some important questions about starting a part-time business. WORKSHEET 11-2 can help you determine whether earning extra money by starting a small business is right for you.

WORKSHEET 11-2

Business Expenses

Expense

One-Time Costs

Monthly Costs

$

$

$

$

$

$

$

$

$

$

$

$

$

$

TOTAL:

$

$

Finding the Best Small Business for You

The best small business for you is the one that you're enthusiastic and passionate about. This means that your business idea has to mesh with your skills, unique qualities, and personality.

If, for example, you're thinking about starting a catering business but don't really enjoy cooking, you probably won't succeed. If, on the other hand, you've always loved cosmetics and like dealing with people one-on-one, you might want to try your hand as a Mary Kay consultant or Arbonne representative.

Matching your work to your personality, qualities, and skills is the topic of hundreds of books. If you're unsure which business idea will work best for you, take a trip to your local bookstore or library and find one that offers self-tests and ideas about home-based businesses.

If you're planning to start your business part time to earn extra money, be sure you choose one that doesn't require a large commitment of time or a large investment of cash. Although you may turn your business into full-time work sometime in the future, you don't want to jeopardize your current job by taking on more than you can handle.
Determining Whether You're Passionate About Your Business Idea

Finding out whether you're passionate about a business idea is pretty simple — just decide whether you agree or disagree with this statement:

Now that I've come up with a potential business, the thought of not pursuing it seems impossible.

If you agree, you're plenty passionate. But if you disagree; that is, if you think your business concept is just okay or seems like too much work, don't bother pursuing it — you won't have the energy required to make it succeed.

Estimating Your Potential Income and Expenses

Estimating your potential income and expenses is always difficult. To keep the number realistic, come up with three scenarios for both income and expenses: Best case; average case; and worst case. If, for example, you think you can get three catering jobs per month, use that as your best case, but also figure out how much you'll make with just two catering jobs (average case) or one (worst case).

Do the same with your expenses. If you're planning to offer graphic-design services from your home and will rely heavily on a desktop computer and color laser printer, figure in the cost of paper, toner cartridges, and software updates in your best-case scenario. Also figure in repair expenses on that equipment in your worst-case scenario.

Keep in mind that many small-business owners underestimate how much expenses really cost. If you're running a business part-time, you may not need to get a second phone number or buy elaborate equipment. On the other hand, you may find that you need to set up a website, buy some basic office equipment, invest in business equipment, get inventory for your business, secure a booth at a local antiques mall, and so on. Use WORKSHEET 11-2 above to estimate your business expenses.

Whatever equipment will be essential to your business's success, include it in your worst-case scenario.

Keeping Your Overhead Low

After you think of all the possible equipment you'll need to make your business a success, determine which items would just be nice, which are absolutely necessary, and which you can buy secondhand. Too many first-time business owners spend hundreds or thousands of dollars outfitting their offices, only to find that those expenses don't increase business traffic one bit!

Use the basic principles in this book to create a separate budget just for your business. Make sure that you include all the “hidden costs” — don't underestimate the cost of things like stamps, envelopes, and other incidentals that can really add up in a business.
Suppose you decide that you don't need a fancy desk for your office — a small wooden one will do just fine. You read the classifieds and look through sale flyers from office-equipment stores and find one that's just $75.

That's a few hundred less than a new desk would cost, so it's a good deal, right? Not if you're planning to run a business that doesn't require a desk! If you can do your paperwork at the kitchen table, don't bother buying a desk until you find that you really need one.

Understanding Business Taxes

Too many small businesses have folded because their owners failed to estimate their taxes properly. The federal government (and, possibly, your state government, too) requires you to pay approximately one quarter of the taxes your business will owe for the year's income at four separate times throughout the year: April 15, June 15, September 15, and January 15. This is known as the “pay as you go” system.

In order to make these tax payments, you'll need to estimate how much you'll owe in taxes at the end of the year, divide that amount by four, and send a check for that amount by each due date. If you fail to do so, you may have to pay a penalty when you submit your next tax return.

Estimating these taxes can be a bit tricky, however. The best way to determine how much you'll owe is to do the following:

Estimate your income and business expenses for the year.

Locate a copy of last year's income-tax forms (or last year's tax software program) for both federal and state taxes.

Fill out Schedule C of the federal form 1040 by using your estimated income and business-expense data.

Using last year's income (from your and your spouse's jobs) and last year's federal and state income-tax forms, and adding in your business estimates, find out how much more you would have owed last year if your business had been up and running then.

Subtract the amount you actually owed from the amount you would have owed if your business had been in operation. This is how much more you estimate your taxes will be this year.

Divide that number by four and send that amount on each quarterly due date.

Continuing to use last year's tax-return forms, keep recalculating this number as you go through the year. If your expenses are higher or your income is lower than you thought, you'll pay less in taxes. If your expenses are lower or your income is higher than you anticipated, you'll pay more. Although tax forms change from year to year, using last year's forms will give you a pretty close estimate.

Deciding Whether You're Ready

The following questions can help you decide whether running a small business is the right idea for you. If you check off all of the following questions, starting a small business will probably be right for you:

You're passionate about your business idea.

You have the expertise and skills required to do this job well.

You have a reputation in your community as someone who can be trusted to do a good job.

You've estimated your expenses and income and feel that the business will bring in the extra income you need.

Your business idea doesn't require a lot of up-front cash.

You're willing to spend a lot of time getting your business off the ground.

You can continue to excel at your full-time job while running your part-time business.

You don't mind completing a few hours of paperwork once a month or so.

You're disciplined enough to work during evenings and weekends, even when no one is looking over your shoulder or pressuring you to do it.

Your family is enthusiastic about your business and wants to help.

Read more »

Sticking to Your Budget in an Emergency

Too often, a budget gets derailed because of an unexpected expense, especially in the first few months. Ideally, you want to keep money in savings for such emergencies, but in case you haven't had time to build up your cash reserves, this section gives you ideas for sticking to your budget even in the worst of times.

If Your Car Breaks Down
Most people on a tight budget have one prayer: “Please don't let anything happen to my car.” That's because car repairs can cost hundreds or even thousands of dollars, and you often can't get back and forth to work without a car. So what do you do if your car does break down?

Immediately Find a Way to Work

Whether you have to arrange for a ride from a coworker, ride a bike, take the bus, rent a car, or walk, if you're in an accident or your car isn't running, figure out a way to get to and from work without delay. Too many jobs have been lost because, for three or four days, an employee couldn't get to work and an employer wasn't very understanding.

If you have to miss or be late for even one day of work because of your car, call your supervisor and explain that you have car problems and are trying to find an alternate way to work right away.

Consider alternate ways to get to and from work before your car breaks down. Even if you never have a bit of trouble with your car, you'll have the peace of mind that comes from knowing how you'd handle a car crisis if you had one.
Research Your Warranty and Insurance Coverage

If you recently bought the car new and your car troubles aren't due to an accident, your car is probably under warranty and will be repaired for free.

Even if you bought the car used, you may have a short-term warranty that covers the repairs you need. If your car isn't running because of an accident, call your insurance company to determine how much of the repairs your policy pays for.

Get a Free Repair Estimate

How do I describe a problem if I don't know anything about cars?
Simply tell the repair shop what sounds you're hearing as you drive (try to make the sounds for them) or what happens when you turn the key. This will give experienced mechanics enough information to give you a ballpark estimate of the repair costs.
If you can get your car to a repair shop, take it there and ask for a free, no-commitment estimate. Make sure you emphasize the “free” and “no-commitment” parts of the estimate. Many repair shops don't charge for estimates as long as you end up repairing your car there.

If you decide not to repair it, or if you go somewhere else for the repair, they'll bill you $50 or $100 for the estimate! Be sure to let the repair shop know that you're on a very tight budget and need to know the least expensive way to get your car running again.

If you can't get your car to a garage or repair shop without towing it (which can be very expensive), call a few garages and describe the problems you're having. Tell them about your tight budget and ask for a ballpark estimate for the problems you're describing.

Some car repairs are simple enough to do yourself. If you or a friend or family member know anything about cars, consider buying the parts and fixing it yourself. If you have an alternative way to work every day, you can spend a few hours each evening working on your car until it's repaired.
Call Around to Compare Your Price

After you know what the problem is, call several garages in your area to find out what they will charge for the same repair. Emphasize that you need to know the total amount and can't afford any surprises. If they won't give you a price, call somewhere else.

If you're going to have it repaired and can't drive it, also call several towing companies to find out how much they'll charge to tow your car to the shop. Keep in mind that your insurance company or travel club may also offer free towing in a limited area. Find this out before you call a tow truck.

Find Out If the Shop Will Let You Pay Over Time

When you find the repair shop that has the best prices and can get the job done quickly, find out whether they'll let you pay over time, say, in three or four payments, without charging interest. They may say no, but it's worth asking.

There are several credit cards that help with car expenses, either giving you rebates on gasoline purchases or giving you points that you can use to buy a new or used car, maintain your car (with tune-ups and oil changes, for example), or make needed repairs.
Develop a New Budget

Using the repair estimates, develop a new budget. Do you have money in savings that you can use? Can you pay the shop a little each month? Can you make the repairs yourself? Can you live without a car and walk, bike, or carpool to work? Can you buy a new-to-you car and still stick with your budget?

Investigate every possible option, but be realistic in your numbers. Whatever route you decide to take — whether that's to make the repair, get another car, or find a way to do without — use your revised budget to begin working toward your financial goals again.

If You Incur Extensive Household Expenses

While you can put off some household repairs, others are critical. If the roof leaks, the sewer drain is clogged, the water isn't running, or you've lost electric power to some of your rooms, you need to get them repaired or replaced. These repairs, however, can be expensive!

The first thing you want to do is try to fix the problem temporarily, so that the repair doesn't blossom into something bigger. Can you, for example, stop the roof's leak by going up into the attic and putting plastic under some of the decking to stop water from coming in? Can you clean out the sewer line with a snake (available from any hardware store)? Have you called the water company to see whether the problem is on its side (that is, in the lines leading up to your water meter)?

Ultimately, however, you're going to have to make one of two choices: Sell the house with the problem or fix the problem. The next two sections discuss these two options.

Sell the House

One way to get out from under large, expensive repairs is to sell your house and move to a smaller one. The problem, of course, is that either you'll have trouble selling the house to any buyer or you'll have trouble selling it for very much money.

One way to avoid losing too much money is to price the house as though the repair did not have to be made (as if the roof were in great condition, for example), and advertise up front that you'll give back half (or two-thirds, or all) of the amount necessary to make the repair at closing. You won't actually have to come up with that cash out of your savings or other account.

Instead, that amount will be subtracted from your equity (the amount of your house that you have paid off) and given to the buyer as a lump sum. You'll get that much less money from selling your house, but you're likely to get more buyers than if you simply price the house lower in the first place. Why? Because many buyers can't afford to make large repairs — they're using all of their cash reserves for the down payment.

Don't ever (ever!) sell your house for less than you owe on the mortgage. If you do this, the lender will immediately demand full payment for the mortgage, and you may not have the money to pay up. Instead, make the repairs.
Here's an example. With a new roof, your house would be worth $90,000. You price it at $84,000 to account for the new roof the buyers will have to get. The buyers are putting 20 percent down and they'd planned on buying a house for $90,000, so they've saved $18,000 for this purpose.

If you price the house lower, they'll have to put down only $16,800, so they're able to keep $1,200 of their down-payment money. But $1,200 isn't enough to pay for the roof! Instead, you sell the house for $90,000 but give $6,000 back at closing. They put down their 20 percent ($18,000), but also walk away with a $6,000 check to pay for the roof. And you still get your $84,000 (minus whatever the balance is on your mortgage) and can look for a smaller house.

Many people don't realize that a Realtor's commission may be negotiable. Before signing with a selling agent (also called a listing agent), discuss the commission (usually 3 percent or 3.5 percent to each agent or 6 percent to 7 percent if one agent represents both the buyer and seller). See if your agent will drop down to 3 percent or 2.5 percent for each half of the sale.
If you're thinking of selling your house, keep in mind that many house sales do not require the use of a real estate agent. Because agents get 6 to 7 percent of the selling price of the house, if you don't hire one, you can afford to do a lot of advertising and pay for an attorney or Realtor to draw up the paperwork (which usually costs $500–$1,000), and still come out ahead.

Many people use real estate agents because they believe they'll get a higher price for their homes — after all, realtors get a higher commission if the house sells for more money. But even this may not be true. Most realtors would rather sell a house cheaply and quickly than price it high and wait for it to sell.

If they have to wait an extra three months — and do quite a bit more work showing and advertising the house — to sell it at a higher price, they actually lose money; they'd rather sell it three months earlier for less money.

Keep in mind, however, that if you act as your own agent, you'll have to put up a sign, take out ads in your local paper, and show the house yourself, and you won't have a realtor to turn to for advice along the way. Use your best judgment.

If you take some time to read up on how to sell your own house and think you're up to the task, go for it. If you don't think you'll be successful at selling your own home, shop around for a good realtor.

Pay for the Repair (But How?)

If you have money in your savings account, even if it was earmarked for something else, you probably want to use it to pay for your home repairs. Short of that, the most logical way to pay for overwhelming household repairs is to refinance your home and cash out some of the equity to pay for the repair.

Even if you don't have much equity in your house (to find your equity, subtract the amount owing on your mortgage from the amount your house is worth), some lenders will still give you cash back, financing your house for up to 120 percent of its value. This can help you pay for your home's repair, but can hurt you in two ways:

Your monthly payments may soar. (On the other hand, if interest rates are lower than when you bought you house, your monthly payments may stay the same.)

You may not have any equity in your house if you plan to sell it in a few years.

You never want to finance your home for more than you can sell it for. If your income changes, you might be trapped in your home, unable to sell it and unable to afford the payments.

If Family Medical Bills Overwhelm You


Even if you carry medical insurance, unexpected medical bills can still pile up. Here's why. Suppose your insurance carries a $250 deductible and then pays 80 percent of your medical expenses (your 20 percent is called your co-payment).

You are in a car accident that doesn't do any permanent damage to your body, but does result in $15,000 in hospital bills. Of that $15,000, you'll owe $250 for your deductible and $2,950 for your co-payment, for a total of $3,200! Where in the world are you going to come up with that?

Generally, you have only one option: Work out a payment plan with the hospital. (A second option is to pay the bill with your credit card and pay it off aggressively each month, but often the interest rate on credit cards is sky-high.)

Some hospitals offer interest-free payments if you pay within three to six months; others charge interest (but usually less than credit card companies charge) no matter how soon you pay.

Most medical providers are willing to work with you to pay off a large balance. They need to know immediately, however, that you'll have trouble paying the balance and want to set up a payment plan.

Never ignore payment notices from a hospital or doctor's office. So many people do this that medical providers are quick to turn to collection agencies and send negative reports to credit-reporting agencies. You may damage your credit rating for years to come.
If you're not sure how much you can pay, revisit your budget. Eliminate any expenses that aren't absolutely required, and see how much you may be able to eke out each month. If this isn't enough, look for larger-scale ways to cut your expenses.

When you've determined how much you can afford to pay each month, approach the medical provider with this amount to see whether it's acceptable. You may have to sign an agreement saying that you'll pay this amount each month — be sure you can pay it before you sign.

Remember: Check your budget first. If you're given a monthly amount by the medical provider, don't agree until you've run the numbers on your budget.

If You Become Sick or Disabled — Even Temporarily

f you're in an accident or develop an illness that leaves you disabled even for a short period of time, call your employer immediately. Most employers carry disability insurance on their employees that ranges from 40 to 80 percent of your income, and most can offer you some pay for sick time until that insurance kicks in.

Send your employer every bit of information they need to process your claim, including letters from your physician. A call from your doctor to your human resources (HR) representative can also be quite helpful.

Whatever you do, don't get defensive with your employer. Your HR rep should feel as though you're as horrified at your absence as the company is, and that you can't wait to get back to work.

Keep in mind that some employees fake illness and injury in order to collect disability pay without working, and you don't want to be labeled as someone who is trying this scam.

If the company doesn't believe that you're actually disabled, you could lose more than a few weeks' pay — you could lose your job. You might be able to fight it in court, but that takes money, too. Instead, contact your employer immediately and work with them to resolve your problem.

Even if your company carries disability insurance, however, it may not kick in for some time, and when it does, it won't give you 100 percent of your pay. In this case — or if your company does not carry disability insurance — take the same actions that you would if you lost your job.

If You Lose Your Job

If you are laid off from your job, you'll probably feel angry, overwhelmed, and out of control, but this is an important time to stay calm.

Not only will you need to keep your wits about you to make the best possible financial decisions, you'll want to watch what you say to coworkers, supervisors, and company representatives. You never know when someone whom you work with now will land at a company you apply to later; you'll want to keep your reputation intact so that you have as many future networking opportunities as possible.

If a Friend or Family Member Has a Special Need
Many, many people are in financial trouble because they've given a friend or family member financial assistance that they clearly cannot afford — making a loan that isn't paid back, offering free room and board, buying a car for someone. Don't let this happen to you.

If a friend or family member is in need, you absolutely must help. But, if possible, avoid helping financially unless you can afford to lose that money completely. Always assume that loans won't be paid back or will be defaulted on, expenses associated with free room and board will be completely on your shoulders, and so on.

If you can't afford to lose the amount of money that helping your friend will cost, don't help financially. Offer prayers, free babysitting (for a limited period of time), an occasional ride to work, and so on.

Also consider taking your friend to a credit-counseling agency or to a lender to see about getting financial assistance. Don't, however, co-sign any loan that you cannot afford to pay off yourself.

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Saving Money for College

Saving for college is on the lips and minds of nearly every parent in America. Although few people are actually able to save the total cost of tuition, fees, room, and board needed by college freshmen, the pressure of trying to do so is still stressful to parents. This section will help to reduce some of that stress.

College costs can be a bit confusing; this section clears up what these costs are and what the average is today.

Tuition and Fees

This covers the salaries of professors, maintenance of buildings, use of school medical clinic, and so on. Basically, it's the cost of being a student (whether a commuter or resident) on a campus.

At public colleges, this number is currently averaging just under $6,000 for in-state residents; it is over $22,000 for private schools, and about $2,300 per year for two-year public colleges.

Room and Board

Room and board includes a place to live and food to eat. Prices for tiny dorm rooms are exorbitant — room and board tends to cost between $7,000 and $8,000 per school year. You can usually save a bundle by living off campus, particularly if you share a rental house with other students.

Sometimes, parents with a bit of extra cash will buy a house for their college kids. The kids living there split the cost of the mortgage payment, taxes, and insurance (and often pay the same price they would if renting), and the parents sell the house when the kids graduate. It's really not a bad idea.
Books

College textbooks are expensive — textbooks can cost over $100 each. The average bill for books for a school year is about $900.

Study Abroad

Many college students try to take one semester or year and study abroad. Expenses vary by the student and the location, but this cost generally includes airfare to and from the location; tuition at the foreign school; and spending money at the location. However, when attending a very expensive university (such as Harvard, MIT, Notre Dame, and so on), studying abroad may actually cost less, even factoring in the increased travel costs.

Internships

Internships are becoming more and more vital to graduating college seniors. If you're able to work in your field of interest before graduation, you'll have a much easier time finding work in your field. Many students live at home while interning during summers; those who can't live at home will need to pay for an apartment during the internship period.

Transportation

Some economists predict that college costs (tuition, fees, room, and board) will rise 6 percent per year, which means that current public-university tuition costs of, say, $6,000 per year, will rise to over $17,000 in 18 years.
Some freshman aren't allowed to have cars on campus, but if a student is to have any flexibility at all, taking a car to school — even an old clunker — is a good idea.

You will, however, have to estimate gas, maintenance, insurance, excise or personal property taxes, and license. Transportation costs vary widely based on the cost of gas, but you can estimate about $1,000 per year for on-campus students and about $1,500 for commuters.

Miscellaneous Expenses

Miscellaneous expenses range from music downloads to late-night pizzas to gas. They generally run around $1,500 per year, for a student on a budget.



Determining How Much You Can (or Want to) Help Out by Tere Stouffer
This isn't a subject that many people talk about, but at some point, you need to make a decision about how much you can or want to help your child pay for college.

Paying for all of a child's college expenses is out of reach for many parents, and if you do so, it may make your child less able to appreciate the gift that attending college really is. A child who really wants to attend college will find a way, either by working part time, winning scholarships, or taking out loans.

Don't assume that you and your spouse or partner feel the same way about whether to pay your kid's college expenses. While you want to try to come to a consensus, agreeing to disagree is okay, too.

Also be sure to include your growing child in this conversation. Kids who expect to pay for all or part of college will be better equipped to deal with finding money than will kids who assume money is available and then are told later that full support is not available.

Just as you can support your child financially, you can also support your child by visiting, calling, texting, sending emails, sending care packages, and so on. College can be quite lonely, especially during the first semester, and your emotional support will surely help.



Seeing How Much You Can Save by Tere Stouffer
How much you can save for your child depends on three factors: How much you're able to invest; how long you have; and how much you can earn in interest.

In general, investing a small amount each month for 18 years will yield greater savings than investing larger amounts for four or five years. Table 18-1 below gives some examples of what you'd save if you put money for college in a tax-free or tax-deferred account.

To find out how much you can save for your child's college fund, visit the FinAid site and click on their Calculators section. You can play around with the numbers and determine how much you can save over time.

TABLE 18-1

Saving for College
Monthly Deposit

Interest Rate

Number of Years

Total Savings

$25

5%

5

$1,707.24

$25

5%

18

$8,766.43

$165

5%

18

$57,858.41

$165

2%

18

$42,928.53

$165

9%

18

$89,161.77

$500

5%

3

$19,457.41

$500

5%

18

$175,328.52


Taking Advantage of Government-Sponsored Savings Plans by Tere Stouffer
If you have 18 years to save for college, chances are you'll end up with quite a bit of money for your child. But even if you don't have that much time, three tax-free college-savings vehicles can help you save for your child's college expenses.

Between the grants that are available to students and the tax savings you can realize, the government can actually be a big help to you and your child. On average, students receive more than $3,000 in grants and tax benefits at public four-year colleges; $9,000 per year at private four-year schools; and $2,200 per year (or nearly the entire amount of tuition) at two-year colleges.

Coverdell Education Savings Accounts

Although renamed the Coverdell education savings accounts several years ago, these are still often called by their old name: Education IRAs. These accounts allow you to contribute $2,000 per year, tax free, for college. The withdrawals are tax free, too.

The account is in the name of the child (called the beneficiary), and nearly anyone can contribute to it tax free, including grandparents, godparents, aunts and uncles, and you, up to the maximum amount each year. Contributing more than the maximum amount, even from several different sources, can result in penalties.

The tax savings for contributing to Coverdell accounts begins to phase out at $95,000 in income for individuals and $190,000 for couples. That's a lot of income, yes, and probably doesn't apply to you, but if other family members or friends want to contribute to your child's IRA, they should be aware that there are income limits on who can receive the tax break.
The money in Coverdell accounts can be used not only for college tuition, fees, room, board, and books, but also for an education-related computer, academic tutoring, and transportation to and from school. The money can also be used for K-12 expenses, including private-school tuition.

If the funds aren't used for education, the account remains in the name of the beneficiary — it doesn't revert back to you or the other donors, and this might really grind your gears.

There's only one catch, really: The funds must be used within a month of your child turning 30 years old. If money were ever left in a Coverdell account and your child turned 30 plus a month, he or she could start another account in the name of another child. This does mean, however, that Coverdell accounts aren't very useful for older adults who want to return to college.

Okay, there's kind of another catch, too. The financial institution that holds your Coverdell account will charge the account a maintenance fee for managing the investment account. The fee is usually small, however.

529s: College Savings Plans

All U.S. states currently sponsor college-savings investment plans. Currently, money put into a state-sponsored 529 is tax free upon withdrawal, and some states give a tax break when you contribute to the plan, too. Beginning in 2010, however, withdrawals will be taxed at the child's current tax rate.

How can I get information about my state's plan?
The Saving for College website lists every 529 savings plan administered in the country, and then reviews information about the plan's manager and its investment rating.
The fact that states sponsor the plans (and may give state income-tax breaks on the deposits) leads some people to believe that your child has to attend an in-state public university in order to use the funds. Only state-sponsored prepaid-tuition plans have that requirement; funds in 529 college-savings plans can be used at any college or university in the country.

Basically, the plans operate very much like an education IRA, except that instead of the money being owned and controlled by the child, 529s are owned and controlled by the parent. Your child is still the named beneficiary, but he or she has no legal right to the money if you choose not to authorize a withdrawal. And you can change the named beneficiary at any time. Anyone can contribute to the 529 fund.

Another striking difference between an education IRA and a 529 is that the amount you can contribute to a 529 is virtually limitless, with no loss of tax benefits for high-income donors. Also, the plan doesn't stop at age 30, so you can establish one for yourself to earn your first degree or attend graduate school.

The tax implications of 529s are not easy to understand. If you're already using the services of a tax accountant, be sure to discuss your college-savings plan, too. If not, consider hiring a qualified tax accountant to help you wade through the many regulations covering these plans.
The account is placed in the hands of an investment-fund manager who charges a maintenance fee, and you can establish direct-deposit funds into the account, making deposits to the plan simple and relatively painless.

Another Kind of 529: Prepaid Tuition Plans

A prepaid-tuition plan allows you to buy tuition shares or units and then hold on to those shares until your child wants to use them. Buying a share is just like paying tuition, but at today's prices. You lock in at today's tuition rates, thus avoiding the dreaded annual increase in tuition.

Family members and friends can buy shares for your child, too, but some states require contracts that lock you in to buying a certain number of shares in a given period of time.

When your child receives the prepaid-tuition shares to use to pay for college, the federal government usually taxes them as income. Since your child has a low tax rate, it may still result in tax savings. States don't usually tax prepaid-tuition shares.
The plans vary greatly in where and how they can be used. Some colleges and universities sell tuition shares directly, but they can be used only at that school.

In other cases, states sell the shares, and they can be used at any public — and sometimes private — college in that state. Some blocks of schools (like a group of private schools) sell the share.

If your child decides not to attend that college or isn't accepted at one, you may be eligible for a refund of the tuition shares, but often a penalty is levied. If you purchased the shares directly from the college or university, you may be able to sell them to another family to use.

Finding Other Ways to Pay for College by Tere Stouffer
Tax-free savings plans are great if you have a few thousand dollars a year to invest for your child. If you're not able to squeeze that much out of your budget, however, consider the following ways to help your child pay for college.

A 15-Year Home Mortgage

One creative way to pay for college if you don't currently have the money to do so is to buy a house (or refinance an existing house) on a 15-year mortgage when your child is born. When you pay off the house 15 years later, begin putting that “mortgage payment” into a savings account or low-risk investment fund.

The account will have 36 “mortgage payments” in it by the time the child is ready for college — an amount that, depending on your mortgage payment, could be substantial. At 5-percent interest, a $1,000-per-month “mortgage payment” into your savings account will yield $38,914.81 in three years. You can then continue using what was mortgage money for college money throughout your child's four or five years at college.

Scholarships and Grants

Scholarships range from athletic grants to academic scholarships to money that's based on geography or heritage. Peruse the many money-for-college books at your local library, and encourage your child to apply for any and every scholarship that looks appropriate.

The majority of academic scholarships now offered to college-bound seniors are based on scores received on the PSAT and SAT. Because only the best scores are reported, encourage your child to take the test early and often, perhaps even investing in a study course.

While the tests and study courses do cost money, they could add up to tens of thousands of dollars in scholarships if your child scores among the top students in the country. Some colleges even offer free tuition and fees for students who score a perfect or nearly perfect mark.

To become eligible for any government grants or loans, your child must complete a Free Application for Federal Student Aid (FAFSA). This form can be time-consuming to complete and may include information that you would rather keep private. Still, no government grants or loans are given unless this form is on file.
The most well-known college grant is the federal Pell Grant, which gives money (up to $4,050) directly to low-income children attending college. It does not have to be repaid, and is available only to undergraduates earning their first degree.

Federal Supplemental Educational Opportunity Grants, which range from $100 to $4,000, may also be available to low-income students.

Loans

Loans are different from scholarships and grants in that they must be repaid after the child graduates from or stops attending college. Federal student loans are usually borrowed directly from the government or from qualifying private lenders — both offer an attractive low interest rate. Many families, even those that do not appear to demonstrate much of a need, are eligible for federal student loans.

Federal Perkins Loans are borrowed directly from the school (also at a low interest rate), but are available only for low-income students. You can borrow up to $4,000 per year for undergraduate study.

Federal Family Education Loans (FFEL) and the William D. Ford Federal Direct Loan are administered by the U.S. Department of Education as either Stafford Loans or PLUS loans.

Stafford Loans are available directly to students, and may or may not be based on need. Total loans vary from $3,500 per year to $10,500 per year for undergrads. PLUS loans are available to the parents of college-bound students, but instead of being due when the child graduates, they must be repaid while the child is still in school.

Work Study and Other Jobs

A lot of students work while in college, and not only does working often not hurt the student's chances of succeeding, it can actually improve his or her chances of being hired after college! Working forces students to be disciplined, and also may provide real-life experience (especially when doing a co-op or internship) that can make a resume shine.

Here are some broad categories of work opportunities for your child:

Work study. Federal work-study programs allow students with financial need to be employed, usually by the university or surrounding community, for a certain number of hours per week. This option is considered part of a student's financial-aid package, along with grants and loans.

Part-time job. A student can apply for a job at the bagel shop or as a professor's assistant and is usually paid minimum wage.

Full-time job. Your child can opt to work full time and attend school part time. Although the full-time job usually isn't professional work, the company may offer some tuition assistance or a flexible work schedule built around class schedules. Most students take six to 10 years to finish a degree while working full time.

Co-operative education. A college co-op education alternates semesters of full-time college attendance with semesters of full-time work in the student's field of interest. The semesters of work usually pay quite well — sometimes enough to pay all of the student's college expenses, plus living expenses during the work semesters.

Co-op positions are difficult to get, and they're demanding because the student must behave professionally during the work semesters and must take full course loads while at school. Most co-op students graduate in five years. Because of their real-life experiences, however, students who co-op are usually the first ones hired upon graduation.

Internship. An internship is similar to a co-op, except that students usually attend their eight semesters of school like other students, interning only during summers and other school breaks. Unfortunately, some internships pay poorly or not at all, but they do provide necessary real-world job experience.


Creating a Budget That Includes College Expenses by Tere Stouffer
In order to begin saving for your child's (or your own) college expenses — whether you have 18 years or 18 months — you'll need to sharpen your pencil and rework your budget.

First, look at your budget to see how much you might be able to pull together each month by reducing your expenses. Then visit FinAid to determine how much you'll be able to save.

WORKSHEET 18-2

A Child-in-College Budget

Monthly Expense

Amount

Ways to Reduce/Eliminate

New Amount

College costs

$

N/A

$

Groceries and household items

$

$

Day care

$

$

Contributions

$

$

Savings

$

$

Rent on furniture or appliances

$

$

Entertainment/babysitting

$

$

Eating out

$

$

Rent or mortgage

$

$

Car payment or lease

$

$

Electric bill (average)

$

$

Gas bill (average)

$

$

Water bill

$

$

Sewer bill

$

$

Trash pick-up bill

$

$

Cable/DSL/satellite bill

$

$

Telephone bill

$

$

Cell phone bill

$

$

Bank charges

$

$

Haircuts/manicures/pedicures

$

$

Home equity loan

$

$

Other loan

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Credit card or store-charge bill

$

$

Child support or alimony

$

$

Car maintenance

$

$

House maintenance

$

$

Auto insurance

$

$

Property taxes

$

$

Gifts

$

$

Events to attend

$

$

Clothing and shoes

$

$

Home insurance

$

$

Vehicle registration

$

$

Vacation

$

$

Club membership

$

$

Other:

$

$

Other:

$

$

TOTAL:

$

$

Another way to determine your savings is to ignore the fact that you'll be earning interest on your money, and just multiply your monthly contribution by the number of months you have between now and the time your child will start college.

FedMoney lists dozens of government programs that give students money for college. If you've been thinking that you can't afford college, visit this site before you give up! There are other sites, too: Search on the phrase “college scholarships.”
Compare that number to today's tuition, fees, room, and board, and you'll have a good idea of how much college your savings will buy. The reason this method works fairly well is that college costs are rising by about the same amount that most investments are yielding.

If you're not satisfied with your potential savings, see if you can find extra money in your budget (by cutting back even further on your expenses), and then calculate how much you'll have saved by putting away that amount.

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