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.