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 others, the cumulative effects of a lengthy recession 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, to save for college and your retirement. Not to mention how to find more spending money for family fun.
We asked financial experts and parents for their strategies on surviving a stalled economy. They’ve provided some – 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:
Know Where Your Money Goes
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 founder of Boston-based Compass Planning and co-author of personal finance books, including The Everything Guide to Personal Finance in Your 40s and 50s (Adams Media, 2010). “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 Mint.com – a free online account aggregator where you link your credit cards, checking accounts, etc. It copies your transactions and provides 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 expert 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 (Doubleday RPG, 2010), 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.
Her advice? Review your fixed expenses every January, using these strategies to seek reduced costs:
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.
- Take a driver’s training course. It can save you 10 to 15 percent in insurance costs.
- If your spouse, parent or in-law is or was in the military, you qualify for USAA military insurance. USAA offers some of the best rates out there for auto and homeowner’s coverage, Kay says.
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 insurer, tell them you think you’re paying too much and ask for help with your premiums.
- Consider what is being insured. “Insure the replacement value of the home, not the dirt,” Kay says. If you bought the house and land for $300,000, don’t insure the lot.
Health Insurance
- Visit ehealthinsurance.com online. Compare different carriers’ quotes and packages.
- 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.
Life Insurance
- Compare coverage and quotes online. Again, take differing quotes and packages to your carrier and ask if they can close the price gap. Just don’t cancel an existing policy until the new one takes effect. Life insurance may require a physical exam and review of medical records, which can take several weeks.
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.
Utilities
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).
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,” she says.
Groceries, Clothing, Personal Care
- 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.
Gas
- 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 heavy items weigh down your vehicle and decrease mileage.
- Pace your driving. Jack-rabbit starts and stops 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 their non-essential driving – 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 for the top brand.”
This teaches your kids to compare the cost of brands to lower-cost, good-quality items.
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.”
- 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.
- Save what you’ve saved on discounted purchases. If you save $5 getting a winter coat for a 5-year-old that can later be handed down to a younger child, move the total amount you just saved 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 and stick to that plan.
“You may not be needing to own your own home or invest in the 401(k) fully right now,” Lane 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.
“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.”
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?
Cobble together part-time jobs, consulting and volunteer work. Consider returning to school if special tuition programs are available for the long-term unemployed, or launch a home-based business.
“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.
Survey: Parents Cut Their Own Expenses First
When times are tough, many parents readily put their children’s needs above their own. In a small nationwide survey, conducted by the networking site Mamapedia, Parenthood.com and our own websites, we asked parents how they’re surviving hard times. Among the 180 respondents:
- About 75 percent shop less, 72 percent dine out less, and 72 percent limit adult outings and activities.
- Only 25 percent limit their children’s extracurricular activities.
- Among the toughest expenses to meet, 47 percent cite groceries and gas/transportation; 42 percent name utility costs; 38 percent cite mortgage or rent; and about 32 percent cite kids’ school expenses.
Most of the parents we surveyed say they try to talk to their older kids about the economy’s effects on family spending. They also rely on coupons, daily deal websites, and combining errands to save on gas. Here’s a sampling of their comments:
“Go out only with coupons.”
– Dayani Zeschau, Torrance, Calif.
“I remind my child that he is fortunate to have the things that he has, and not everyone has money for extra things.”
– Helen Cordero, New York, N.Y.
“My kids are actually too stressed about it. They opt to not participate in things that cost minor amounts of money, and that worries me.”
– Kirsten Luehr, Palo Alto, Calif.
“I use the library a lot for extra-curricular activities. . . . I also use memberships more regularly; then I don’t have to pay admission each time.”
– Amanda Taylor, Gardner, Mass.
“Keep life simple. Instead of going out to eat for entertainment, cook an easy meal or make sandwiches and have a picnic on the floor of the living room. Play games instead of renting/buying a movie on demand.”
– Adrienne Shields, College Station, Texas
“If I think of an item I want to buy in terms of how many hours [I’d have to work] to earn the money, then I’m more likely to resist an unnecessary purchase.”
– Marla Bassett, Aurora, Colo.
Don’t Sacrifice Fun!
Use some of the savings from reduced fixed and daily expenses to pay for eating out, visiting attractions or traveling, but also look for deals on the entertainment itself.
Among family finance expert Ellie Kay’s favorites: the daily deals offered by Groupon.com, LivingSocial.com and other websites; TravelZoo.com for discounted tickets to area attractions; and Restaurant.com for gift certificates to local eateries.