Budgeting during a crisis

you’re dealing with emotional pain and a change in your finances.

The best way to cope with financial changes is to face them by developing and sticking to a budget. With a budget, you may find steps to take to lower your expenses and prioritize your spending.

Assess your income

The first step to budgeting during a crisis is to determine how much you have coming in each month. Review your pay stubs or bank statements, and if you have income that is not consistent, look at how much you’ve made on average over the past few months.

Assess your expenses

The payment adjustment typically lowers the payment amount. Lenders may also offer the option of stopping your monthly payment temporarily.

• Rent or mortgage
• Utilities (including internet service)
• Cellphone
• Transportation
• Credit card payments
• Car payments and upkeep
• Groceries and household supplies
• Health care expenses
• Personal care
• Pet care
• Dining out
• Entertainment (including streaming subscriptions)
• Education and childcare
• Insurance (e.g., home, car, health, life)
• Other debt payments
• Charitable donations
• Savings

Use categories that make sense to you and be as specific as you can with your expenses. The more you can track your expenses, the better you will be able to pinpoint areas of where you can reduce spending and save money. Online tools and apps exist that may help you categorize and track spending as well.

Adjust your expenses

Add up your expenses and compare them to your income. During a crisis, you likely have more expenses than income, so it’s time to prioritize.

• Focus on highest priorities: A crisis budget should focus on what you need in order to work, stay healthy, and remain sheltered. Housing payments and groceries should be the highest priorities and from there, consider what you need to pay next.
• Cut expenses: Consider what you can cut from your expenses to help pay for your highest priorities. If you subscribe to multiple streaming services, choose one or none. If you’re dining out twice per week, what could you save if you went out just once per week? If your electric bill is high, consider adjusting the thermostat by a couple of degrees.
• Reduce savings if needed: If you’re setting aside a lot for retirement, consider reducing the amount you save temporarily. But if your employer matches some of your retirement contributions, try to keep saving the matched amount. Meeting your employer’s matched contribution means that you are essentially doubling what you save up to their stated percentage. Keep contributing to an emergency fund if you can, but if you can’t, that’s okay. This is an emergency.
• Suspend autopay: Take a close look at any bills you have set up to be paid automatically and consider taking them off autopay temporarily. When things are tight, a bill deducted at the wrong time could leave you with overdraft fees. It’s best to manage things manually and pay what you can when you can.
• Be realistic: It’s also important to be realistic. You don’t have to deprive yourself of every non-essential purchase. For example, a haircut might seem unnecessary, but if it boosts your confidence, it might be worth the money.

Increase your income

If it’s practical, consider ways to increase your income. There might be items around your home that you could sell online or by having a garage sale. Or you could try working with a drive share, online delivery service, or online tutoring. Every little bit of extra income can help.

Ask for help

You may still have a shortfall after having done what you can to trim down your expenses and increase your income. That means it’s time to ask for help.

• Explain your situation: Lenders and creditors are often willing to work with people experiencing a crisis, whether it’s a job loss, unexpected medical bills, or the loss of a loved one. If you’re having trouble keeping up with payments, be proactive by contacting your creditors. Explain your situation and ask what your options are.
• Debt payment relief: You may be able to skip a payment, move a due date, or be considered for an alternate payment plan. Be firm about what you can do and what you can’t. If you have student loans, consider applying for a deferment, forbearance, or income-driven repayment plan.
• Housing support: If you’re experiencing a crisis due to COVID-19, you may be eligible for housing assistance. Visit the Consumer Financial Protection Bureau [link: https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance] website to learn more about mortgage relief.
• Additional assistance: Depending on your income, you may be eligible for additional assistance. The Supplemental Nutrition Assistance Program (SNAP) offers help with grocery purchases. There may also be local programs in your area. A good starting point is calling 211 or visiting https://www.211.org/, a United Way service that connects you with local assistance programs.

Consider refinancing

If you’re a homeowner, refinancing could be a way to lower your monthly payment or access some extra cash. When you refinance, you use a new mortgage to pay off your old one.

If you’ve been making payments on a 30-year mortgage for 11 years and you refinance with a new 30-year mortgage, you’ll lower your payments. The downside is that you’ll have another 30 years of payments and will pay more in interest.

Your monthly payments could also be lower if you qualify for a lower interest rate. If you’ve built up equity in your home, you may be able to do a cash-out refinance.

Keep in mind that you’ll need to qualify for a refinance, and lenders will look at your income and credit score. If your income has taken a hit, you may not qualify unless you have a credit-worthy co-signer.

Use credit if you must — carefully

In a crisis, you might be tempted to use credit cards. If you do, make sure it’s for necessities and pay them off as soon as possible. Credit cards can be an excellent tool for managing cash flow, as long as you’re dedicated to using them responsibly.

Credit card interest rates tend to be high, and they can take a long time to pay off if you only make minimum payments. During a crisis, though, they can work in situations when you know you’ll have the money, but you don’t have it right now.

Avoid short-term solutions with long-term effects

While some solutions may provide short-term relief, they may have long-term effects. Make financial decisions that will serve you even after the crisis is over.

• Avoid payday loans: It’s tempting to reach for anything that looks like a lifeline in a crisis. For example, payday loans are quick and easy to get. The downside is that you pay a significant amount in interest. With some payday lenders, you can end up paying almost as much in interest as you borrowed.
• Consider personal loans: A better alternative could be a personal loan. These loans typically have longer terms, so you have more time to pay them off. Some have high interest rates, though, so review the fine print carefully and work with a reputable organization. Your bank or credit union is a good place to start.
• Be wary of debt relief: You may also see debt relief or credit repair advertisements. While some are legitimate, many charge hefty fees and don’t offer anything that you couldn’t do yourself.
• Explore credit counseling: If you’re feeling overwhelmed by debt and the crisis you’re facing, consider working with a highly recommended credit counseling agency. These counselors can help you develop a budget and organize a plan for managing your debt. You can find assistance at https://fcaa.org/ or https://www.nfcc.org/.

If you're new to the process and want to ensure you're exploring your options safely, you can verify the legitimacy of a credit counseling agency at https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111.

The information in this article was obtained from various sources not associated with Adirondack Bank. While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. Adirondack Bank is not responsible for, and does not endorse or approve, either implicitly or explicitly, the information provided or the content of any third-party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. Adirondack Bank makes no guarantees of results from use of this information.