Strapping Down to the Minimums

With the US jobless rate now at 8.1 percent and no sign of ending soon, we all know someone who has been laid off, or is facing a lay off.  That someone could be you.  We all want to know how we can make most efficient use of what we have until we can make it to the next job.  I’m going to suggest a few ideas.

Let’s assume you are in a nightmare scenario.  You are laid off.  You have a mortgage, credit card debt and a small amount of money in an emergency savings fund.  You were just starting to pay off your bills, and save in your fund.  You could be out of work for 6 months to a year, and you only have 1-3 months of money in your savings account.  There’s not much you can do.  You have to figure out how to stretch what you have.

It’s great that you have that emergency savings.  Try to minimize the use of your credit cards (stop altogether if possible) and stretch that money out as far as you can.

Get a list of all your recurring expenses.  If you have cable, usually people would say this is the first to go.  I say it depends.  If you live in an area where cable is your only choice for high speed internet, then you should probably keep it.  I live in Seattle where there is an abundance of free WiFi coffee shops, so I would cancel my service.  Losing internet is not an option in today’s world.  It’s a necessity to find jobs competitively.

I would not drop my cable and switch to another carrier.  There will be signup fees and a new modem purchase for DSL (or other).  These are expenses cannot be afforded at the moment.  Drop the cable to basic and keep the internet.  Cancel TiVo or On-Demand subscriptions.  I watch my favorite shows (Lost, Heroes) and movies when I want on Hulu.com or Netflix.

Don’t cancel Netflix.  Same with the World of Warcraft subscription.  This is different than what most people would say.  Why I say that is because I’d go crazy if I don’t have something fun to do.  Also, if there is entertainment at home, I am less likely to spend money at the bars and club, which are clearly a must-go expense.  If you have the discipline to dust off your old stand alone games without a subscription, canceling your WoW account would obviously be even better.

If you have an expensive cell phone plan, this can be tricky.  Normally, this is also an area that you would want to trim back on.  It gets tricky because of contract terms.  This is why I don’t have an iPhone – I don’t want to be locked into a 2 year contract for this reason.  Here is what I would do.  The contract should be for service with AT&T, not the iPhone itself.  Even the cheapest iPhone plan ($60) is more expensive than basic AT&T mobile phone service.  I would see if I could buy a cheap basic phone, and have AT&T transfer your phone number and contract to that phone, then end your iPhone service.  Sell your iPhone.  I don’t have an AT&T phone or iPhone, so I’m not sure if this will work.  Call AT&T and ask.

Eat at home.  I've started a series on Recession Recipes at my Calorie Crunch blog. These are designed to be easy, minimal cooking skill (can you boil water and chop an onion?), economical recipes that almost anyone can fit in their schedule.

You’re going to have to find creative ways to stretch your money to pay your mortgage.  I am assuming that if you hadn’t been laid off, you would already be fine with your mortgage payments.  If you have a spare room or basement with junk, empty it and rent it to a college student.  There’s still high demand for rentals.  Your new housemate can help subsidize a fraction of your mortgage.  It will at least stretch your savings a small bit, buying you a little more time.

Pay the minimums on your credit card and do not miss a payment! You cannot afford for them to assess penalties, late fees and increase your interest rate. As soon as you get the bill from them, send the minimum immediately. Do not try to float close to the due date and earn a little more interest on your savings – it’s not going to help you at this point.   You need to make sure that payment gets there on time.  If you miss a single payment, it’s game over.  You will go into the credit card debt spiral with no near term end. 

Do not use credit cards for emergencies.  This is why you need an emergency savings account with good hard cash.  If you do not have an account with cash, how are you going to make the minimums on your credit cards?

Do not listen to people who say if you don’t spend, then we can’t revive the economy.  If you lost your main income and are living on savings, you are in survival mode.  You are in no position to be a consumer.

For those of us who still have jobs, keep pushing down that debt and put as much as you can into the emergency savings account.