by Deirdre Wilson
Sometimes hard times yield great ideas.
As we head into the fourth year of a sour economy, that’s just what families hit by layoffs or the mortgage crisis need. Nearly a third of this nation’s unemployed are parents (with 8.1 million children affected), according to labor statistics. And last year, foreclosure filings hit a reported 2.9 million properties.
For other families, the cumulative effects of a lengthy recession really hit home in the last year or two, as more parents found themselves barely breaking even at the end of the month.
No matter where you fall on the hardship scale, you’re likely puzzling over how to make ends meet – how to hold onto music or sports lessons for the kids, save for college and preserve your retirement fund. Not to mention how to find more spending money for family fun.
We asked financial experts and parents how to survive a stalled economy. And they provided some enlightening strategies – doable ideas that can make a difference. Whether you’re coping with long-term joblessness or a strained bank account, here’s where to start:
It sounds obvious, but many people have no idea where their money goes. “They think they do but they don’t keep real close track of it,” says Jennifer Lane, a certified financial planner and co-author of personal finance books, including The Everything Guide to Personal Finance in Your 40s and 50s (Adams Media, 2010) and The Complete Idiot’s Guide to Protecting your 401(k) and IRA (Alpha, 2009).“People don’t realize how much money they spend on stuff that they don’t really care about.”
Start tracking what you spend in a month and identify where you can cut back. Lane recommends a free online tool at Mint.com – an account aggregator where you link your credit cards, checking accounts, etc. It copies your transactions, puts them into categories and provides easy-to-understand summaries, graphs and pie charts on what you spend your money on.
“Don’t worry about what you’ve spent money on in the past. You just need to track it going forward,” Lane says. “You think buying cups of coffee cost, say, $800 a year, but you don’t realize the gas you use to get that coffee, the dinner supplies you might decide to buy on the way back. It really adds up.”
Overhaul Fixed Expenses First
When cutting back, most people think of day-to-day expenses for things like groceries, gas, eating out, etc. But family finance guru Ellie Kay says the first place to look is your fixed expenses – auto, home and health insurance, the mortgage and seasonal utility costs.
Kay, author of several finance books, including The 60-Minute Money Workout, is also a mother who boasts of wiping out $40,000 in consumer debt in two and a half years as a new wife and stepmom to two children supported by only her husband’s military income. Today – five additional children later – Kay’s family has paid cash for cars, furnished two homes, vacationed, created a retirement nest egg and sent six kids to college loan-free. (The seventh is still in high school.)
Her advice? Review your fixed expenses every January. She offers these strategies for seeking reduced costs:
On Auto Insurance
• Comparison shop. Get a quote from another insurer. Statistically speaking, people who switch their auto insurance coverage can save an average of $400 a year (sometimes by bundling it with home insurance, for example), Kay says. But don’t necessarily switch if you get a lower quote. Call your current carrier, tell them what you can save with another insurer and ask what they can do to keep your business. Usually, they’ll work with you to more closely match the competition.
• Taken a driver’s training course? Send your insurer the certificate. It can save you 10 to 15 percent in insurance costs.
• If you have a soldier or veteran in your immediate family, you qualify for USAA, the military’s insurance provider. USAA offers some of the best rates out there for auto and homeowner’s insurance, Kay says. If your spouse, parent or in-law is or was in the military, your family qualifies.
n Homeowner’s Insurance
• Reevaluate your homeowner or rental policy. “Most of the time your insurance is rolled into your mortgage payment,” Kay says. “You get it in the mail and assume your bank is paying it, so you ignore it.” Call your insurance provider, tell them you think you’re paying too much and ask for help with your premiums.
• Consider what is being insured. “You should insure the replacement value of the home, not the dirt [the property around it],” Kay says. So if you bought the house and land for $300,000, don’t insure the lot.
On Health Insurance
• Visit ehealthinsurance.com online. Compare different carriers’ quotes and packages and tailor one to fit your needs.
• Update your insurance to reflect your family’s specific health needs. If you’re not having any more kids, drop maternity coverage; if two of your three kids have asthma, put them on your working spouse’s group insurance plan. Then put the healthy child and yourself on an individual plan. “That’s a lot cheaper in most cases,” Kay says.
• Try to attach a health savings account (HSA) to your policy. These are accounts where you deposit funds in advance for doctors’ appointments, medicine, etc. Then you use the HSA card to pay for those expenses over the year. You can roll any funds you haven’t spent into future years.
On Life Insurance
• Compare coverage and quotes online. Again, take differing quotes and packages to your current carrier and ask if they can close the price and coverage gap. Just don’t cancel an existing policy until the new one has taken effect. Life insurance may require a physical exam and review of medical records, which can take several weeks.
On Mortgage and Car Loans
• Consider refinancing your home when mortgage rates are low. Refinance when rates drop a full point, keep the length of your loan the same period or less, and be sure no penalties are associated with refinancing. The same goes for refinancing your car. Visit BankRate.com online to find brokerages with the best refinancing rates and policies.
Tell your provider you think you’re paying too much and ask for help. Some companies offer a home energy assessment – which identifies inefficient appliances or places where heat escapes – either online for free or through a home visit for a flat fee (like $50). “It’s worth it,” Kay says. “Every year, we have them come out and assess and [upon fixing the problem] we save twice as much.”
Then Tackle Your Daily Expenses
When it comes to routine living expenses, “It’s no longer enough to buy something on sale,” Kay says. So look for items on sale that you also have a coupon or rebate offer for. “Layer on the savings.”
On Groceries, Clothing, Personal Care Products
• Look for announcements about sales and special deals on the website, Facebook or Twitter sites of your grocer, drugstore, home goods or clothing retailer.
• Visit savings sites like Couponmom.com. Combine a store coupon with a manufacturer’s coupon.
• Look for unusual deals. As Target expands its department stores to include groceries, for instance, special coupons or grocery cards may offer a bigger discount if you shop there.
• Visit fuelcostcalculator.com, a website sponsored by AAA, to calculate what it will cost to drive to various destinations. Download apps from gaspricewatch.com, fuelmeup.com or gasbuddy.com for locations of the cheapest gas prices.
• Clean out your trunk. Sports equipment and other heavy items weigh down your vehicle and decrease your mileage.
• Pace your driving. Jack-rabbit starts and stops, and low air pressure in your tires will cost you in fuel efficiency. Plan your trips during off hours; you’ll save on gas if you encounter less traffic.
• Make your teens pay for driving that isn’t necessary – visiting friends, driving to Six Flags, etc. “Teens will always take the longest route,” Kay muses. “They love to drive. Some parents charge their teens a flat rate to drive – maybe it’s, ‘You pay for half of every tank of gas.’”
Be Selective with Childhood Expenses
When it comes to extracurricular activities for the kids – piano lessons, Scout dues, sports fees – many parents don’t want to say no. But with seven kids, Kay and her husband had to adopt a “do one thing well philosophy.”
“It’s not an inalienable right for your child to be doing two sports, music lessons, etc.,” Kay says. “Have them pick one thing and work on it; do it well.”
What about pleas for top-brand sneakers or jeans? “Don’t say no to kids when they want those; tell them you’ll pay for them, but not for the brand,” Kay says. “Look for a reasonable price for a pair of jeans or sneakers and tell your kids you’ll pay that amount but they’ll have to pay the extra, say, $50 that comes with a top brand name.”
This teaches your kids to compare the cost of brands to lower-cost, good-quality items. “They’ll start to think, ‘Wow, do I really want to pay that much when it’ll go out of style or I have to babysit three kids for three hours just to raise money for it?” Kay says.
Don’t Forget Your Savings Account
Despite dire warnings from financial experts, we continue to be a nation that doesn’t save. What’s the average amount you should be setting aside for emergencies, potential joblessness or expensive needs? “It’s really as much as you possibly can,” says financial planner Jennifer Lane. “Ideally, you should be saving 20 percent of your pay over your entire lifetime.”
When your kids are young and daycare costs hit $1,000 a month, saving that much might be impossible. “But realize that when they come out of daycare, the money you were spending then can become savings,” Lane says. Make sure that it does.
• Start somewhere, saving just 1 percent of your income if you have to. Have it directly deposited from your paycheck so you never see it. “The big part of your financial nest egg isn’t going to be what you’ve earned; it’s going to be the fact that you saved up the dollars over time,” Lane says.
• Save what you’ve saved on discounted purchases. If you save $5 getting a winter coat for a 5-year-old that can then be handed down to a younger child, go home and move the total amount you just saved into your savings account. Review your expenditures weekly to move savings from discounts into your savings account.
Plan for the Big Expenses
A bad economy can derail efforts to save for huge expenses like college tuition or retirement. Your best strategy? Plan ahead together, and stick to that plan, Lane says.
“You may not be needing to own your own home or invest in the 401(k) fully right now,” she says. “Sit down and do a plan – ‘We’re going to take the next six years until child number three is in second grade and not put anything into the 401(k) except for one spouse’s company match.’ That’s OK, because if you’re paying a lot for daycare right now, you can start investing that money when the kids are out of daycare and you’ll catch up.”
The prospect of paying for college for seven kids forced Ellie Kay’s family into a team strategy. It also reinforced some family values she and her husband feel strongly about – that kids should contribute to funding their college education.
“We paid a portion of college expenses for the kids. But the kids’ job was to get the scholarships, do work-study programs, score high enough in high school [on standardized tests like Advanced Placement] to get credit for courses in college.”
The kids were told to view looking for scholarships as a part-time job during high school. A couple of her children chose to attend a military academy, where an education is free in exchange for military service.
Look for alternative funds for college, too, Kay says, pointing to rewards programs such as UPromise.com, where a percentage of your or a benefactor’s shopping, dining out and other expenses go into a child’s college fund. “Your parents and your husband’s parents, your sister – they’re spending money anyway. This way, they can help pay for your child’s college.”
And If You’re Still Without a Job?
Try to maintain a busy weekly routine, Lane says. Cobble together part-time jobs, consulting and volunteer work. Consider returning to school if special tuition programs are available for the long-term unemployed. Launch a home-based business, working with the Small Business Administration to set something up.
“We’re going to see a lot of people starting their own businesses from all of this,” Kay says. “They’ll be working harder because they’re working for themselves. They could very well look back and see this bad economy as a blessing rather than a curse.”
Deirdre Wilson is the national senior editor for Dominion Parenting Media.