The Scranton Times Tribune (CFED)
By: Jim Dino
March 4, 2012
Expect and prepare for the worst
Nearly one-fifth of Pennsylvania households do not have sufficient net worth to live at the poverty level for three months in the absence of income, according to a report from the nonprofit Corporation for Enterprise Development.
The analysis, as part of the nonprofit's Assets & Opportunity Scorecard, looked at the financial cushion a household has to weather crises, such as job loss.
Terri Stocki, a credit counselor with Consumer Credit Counseling Services, said people have to expect - and prepare - for disaster now more than ever because of the state of the economy.
"I'm sure many people don't save for that type of an emergency," Ms. Stocki said. "Everyone hopes they are at their job forever, but things have certainly changed. It's more important to plan for that kind of an emergency these days than ever."
First, people have to look at their current spending habits.
"The first thing they would want to do is to review their budget and see if they can cut back on any expenses," Ms. Stocki said. "Maybe they don't need the premium package for their cable or satellite TV, for example. Maybe they can cancel their landline for their telephone if they primarily use their cellphone. Re-evaluate the cellphone package. Maybe they can cut down to less minutes if they aren't using them."
In preparing a new household budget, Ms. Stocki said people should track their expenses to see where they are spending their money.
"They should track all of their expenses for about one month, literally write down every penny they spend," she said. "A lot of times we do things so automatically that we don't think about the cost, say for a daily coffee on the way to work. If it's $1.50 a cup that's $30 a month during a typical five-day work week."
To create a budget, Ms. Stocki said people have to calculate their monthly income and monthly expenses.
"During a layoff, you need to have control over your money. Starting a budget will help you do this. First, calculate your monthly income. Be conservative, and don't forget to deduct your income tax from your unemployment compensation check.
"Second, calculate your expenses," Ms. Stockl continued.. "Allot money to your priorities, like shelter, utilities, food, medical and emergency savings first. Any leftover money goes toward nonessential expenses such as entertainment, dining out or cable TV. If you do one thing during this period, learn to separate your wants from your needs. You may need to make short-term sacrifices to insure your long-term stability."
She said people have to change their attitudes.
"While going through a layoff, you will have a smaller income than what you are used to," she said. "It is critical that you change your spending habits to match this change in income. If not, debts may accumulate that you will be unable to pay. Learn to live within your income."
That means once you develop a budget, stick to it.
"Carry a pocket-sized notebook wherever you go," Ms. Stocki said. "Every time you spend money, no matter how much or how little, write down what you bought, the price, and the date. Compare your spending to your budget. Are you spending what you planned? Where can you cut back? By doing this consistently over the course of a month, you will find out where your money is disappearing."
And don't extend your credit any further, she said.
"Failure to do so will lead to problems later on," Ms. Stocki said. "Many people who come to CCCS used credit to supplement their income and created a large debt for themselves. If you avoid using credit during this period, your future income will not be owed before it's earned. Leave your credit cards in a locked box, not your wallet. Avoid taking out new loans."
Ms. Stocki also advises when you get a new job, plan ahead to avoid future problems.
"Use extra income to start a savings account for emergencies," she said. "It is recommended that you have enough to cover six months expenses. Consistent saving for other goals, like retirement and children's education, will also help safeguard them from job layoffs or income reductions. Don't waste your money, spend smart and save it."