You may be noticing the economy in the United States slowing down. The slowing of the biggest consumer engine in the world has an impact in the global economy, causing other economies to sputter and stall out too. If we are in a recession, you can thank the tanking of the housing market and the tightening of credit markets for the current conditions. This can leave families strapped for cash with the possibility of less income in the future. That’s why today’s strategy for survival may have more to do with conserving the money you do have, planning ahead for the long haul, and waiting out a tough economic market that might last several years.

One of the ways corporations and banks get rich off of you is by assessing fees and taxes on your accounts and income. If you live paycheck to paycheck, it can be hard to manage all your accounts and skipping a payment may end up happening and costing you late fees and higher interest rates. While the natural reaction may be to try to constantly be reactive, in order to really balance your accounts you need to take a long-term proactive view of your finances. Automate as many bills as you can while making sound financial steps to reduce potential leaks in the future. Here are several ways to get a long-term view of your finances to incrementally increase your income in the future while cutting expenses:

  • Hire a finance counselor — They can help you review your financial goals and your current situation, offering an objective appraisal and advising you on your best course of action to stop leaks and increase income.
  • Review your tax situation — You can do this by reviewing your past filings or with a tax specialist who can offer you suggestions on ways to prepare for next year’s taxes to save money.
  • Understand your contracted agreements — If you have an adjustable rate mortgage, find out now when your rate is due to adjust and the maximum it can increase. Start to plan for this event ahead of time by reducing expenses elsewhere or refinancing. Other contracted agreements that can be reviewed are: cell phone, cable, insurance (health, car, home, other), rental, and credit card or loan agreements. Understand the penalties for terminating a contract early or how to exit one gracefully without fees.

Proactive Planning

If you are worried about being laid off or expensive medical treatments that are bleeding you dry, then you need to sit down and work out all your emergency plans to allocate cash where you need it and dump or delay cash expenditures where they are less crucial.

Let’s take a fictional person named Linda to go through this exercise. Say, Linda makes about $40,000 and is single. She is working in the home mortgage industry and is watching people get laid off left and right. The odds of her holding onto her job are getting worse by the minute. This is the time to be proactive. Most people simply hunker down and hope the axe falls somewhere else, but that isn’t necessarily the best strategy.

If Linda were to be proactive, she would start to gather all her financial information together. She might contact a financial expert to help her see the long-range view and how she can handle an unexpected job loss before it happens. Having reviewed her tax information, she may find that she qualifies for additional deductions that she didn’t know she had, and even more, if she were to lose her job. She might qualify for job search expenditures related to her job search (should she end up unemployed) as long as she keeps the appropriate records. Some people in different industries or the military may find they are eligible for job retraining too. She may decide to upgrade her skills in a different area while still employed in the mortgage industry to help her remain marketable in a competitive environment.

Having already reviewed her agreements, she realizes that her adjustable rate mortgage is due to reset. She contacts the bank early to see what her options are while she is still employed. She may be eligible for refinancing now versus later, when she might not be after losing her job. If she had a fixed rate mortgage, she may want to see if she can establish a home equity line of credit in the event she needs additional cash in an emergency later or a longer term to reduce monthly payments.

Linda also realizes that her cell phone contract is up. She can choose to not renew this contract for two years, and shop for a shorter term or a prepaid phone plan, avoiding termination fees in the future should she be unable to make this payment. Winter is about to start up and Linda may decide that she wants to even out her payments. She calls the utility company and gets on their balanced payment plan, thus avoiding uneven bills in the future when she might not be able to extend her cash resources this far. She reviews all her insurance plans and shops for better rates yearly. She researches what she might do in the event she loses health benefits along with her job. She plans out exactly how long she can float herself and how much she needs to make to establish a new foothold in a new job. She will identify sources of easy credit to help her like payday loans, credit cards, and home equity lines of credit.

Conserving Your Cash

After Linda does all the legwork necessary to prepare her for the event of a cash shortfall, she still has a variety of ways to cut costs and money leaks in her home. She should seek to make her home more energy efficient (while she has the income coming in), and replace old appliances with new more energy efficient ones. She can look into her grocery budget and find ways to cut costs there. She should establish a six month emergency cushion in an account that is easily tapped (not retirement or stock plan). Every little savings may seem like very little, but it can add up to hundreds, and sometimes even thousands, of dollars a year in savings when all is combined. In addition, Linda will have learned how to juggle the bills the best way and which bills cause bigger penalties for being late than others. Those she will prioritize or automate and keep a close watch on while she continues to try to identify opportunities to bring in more income.

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