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January, 2008

Managing Tough Times: Family Finances By: Janet Bechman

If a sudden reduction in income strikes your family, there are a number of steps you can take to

minimize the hardship. The first impulse for many people is to panic. Although this is common, it is an

impulse to avoid as much as possible. One way to reduce anxiety is to assure yourself you are doing the

best you can with your family’s resources. Here are some suggestions for helping you direct your

financial affairs and make informed decisions.

Control as much of the situation as you can. Don’t waste energy blaming yourself or others. Loss of

income affects many people for many reasons and often the reasons are not under your control. Set you

mind to dealing with the situation. Recognize that your life will be different for a time. You need to see

your situation as it is; not how you wish or think it is.

Get information about your financial and family resources down on paper. Take stock of what you own

and what you owe. Write down the income you expect to receive and the expenses you anticipate. List

family members’ talents and skills that might be used to produce income, save money, or trade for

needed goods and services. Is there another earner already contributing to the family oncome? Can the

contribution be increased? Can a family member get a temporary job? Could you start a business at

home?

You will also want to learn about community resources available to help you and others in times of

economic and personal distress. For example, free or low-cost health services, food assistance

programs, local thrift shops, family counseling services, or financial counseling services may be available

in your community.

Once you know the figures and see them in black and white, you can develop a plan for making the most

of family and community resources. A little knowledge goes much further than either imagining the

worst or ignoring reality.

Communicate with family members about your situation. Your family will need to work together to carry

out the decisions you make together. Discuss the money you have and where it is going. Which

expenses are important and which ones are less important? Family member need to agree on which

items are high priority, which are less important, and which can be postponed or replaced by less

expensive substitutes until your financial picture improves.

You will also need to communicate with creditors. One of the most stressful outcomes of a reduction in

income is the worry that creditors are all around, impatiently waiting for you to pay overdue bills.

Avoiding them is not the answer. Read your credit contracts to find out what happens if you miss a

payment and then contact your creditor before they contact you.

When communicating with creditors, know how much income you can count on, what your expenses

will be, and how long you expect your income to be reduced. Present a reasonable plan for paying your

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debts. Work out an agreement with each creditor that is acceptable to both of you. Your plan may be

that you make smaller payments for a period of time. Although this may increase the total amount of

your debt, it will help ease the burden of a decreased income. Most importantly, do not ignore bills and

past due notices. Fear caused by uncertainty and avoidance are always worse than facing the facts and

following a plan to take control.

Change your lifestyle. Studies show families respond to reduced income by cutting their spending. Many

families reduce spending for items such as vacations, eating out, and home furnishings first. The, if the

reduced income continues, many families report spending less for basic needs including food, shelter,

transportation, and medical care. The studies found that families who quickly made changed in their

spending habits were the most satisfied with how they were managing. Families who did not make

changes felt more out of control and more dissatisfied.

Look for ways you and your family can use time, energy, talents, and knowledge to reduce expenses. If

you are buying something new, consider substituting a less costly item. Take better care of the things

you already own. Find new uses for the resources you already have. Expand a skill into an income-

producing activity. Swap items and services with friends or neighbors. Use community resources such as

food stamps, utility assistance, and health clinics. When your income is reduced, each spending

decisions is critical. Remember to use your resources where they do the most good in meeting your

needs and wants in the short- and long- terms.

While changing your spending patterns can be painful, the pain can be minimized if family members

communicate openly and if the family works together on developing and carrying out a plan. Getting the

most from the family income during this time requires careful planning and wise spending decisions.

Living on a reduced income can be temporary or more long lasting. It’s up to you to chart a course for

your family finance by taking control, communicating with family members and creditors, and making

necessary changes.