What to Do When You Run Out of Money

NEW YORK (MainStreet) — No one wants to consider the scenario where they lose it all, but more and more households are in danger of running out of money as the U.S. economy struggles to recover from the recession.

Millions of Americans have lost their jobs and homes in recent years, or at the very least have seen their salaries and investments negatively impacted by the economic downturn. Poverty rates hit a 16-year high in 2009, the most recent data on record, with some 700,000 additional families falling into poverty that year alone, and more recent reports provide little reason to expect much improvement. One survey from 2009 found that half of all Americans would have difficulty coming up with $2,000 within a month. This year, a separate survey found that 64% wouldn’t be able to find even $1,000 in their savings account to handle an unexpected expense.

All of this has forced a large portion of the population to consider lifestyle adjustments and government assistance that might once have been unthinkable to them. The number of Americans who rely on food stamps, for example, has skyrocketed from 27 million the month the recession began to more than 45 million in May this year.

“We have clearly seen an increasing number of people who never had to ask for help before not knowing where to start now,” said Josephine Robinson, vice president of income and community development for the United Way, who refers to this population as the new poor. “They never had considered that the money wouldn’t be there and that they might have to ask for help one day.”

This group includes some of the more than 6 million unemployed who have been out of work for six months or longer and particularly older Americans who lost their jobs and saw the value of their homes decline. One recent report from the AARP found that 25% of workers 50 and older had exhausted all their savings between 2007 and 2010 to stay afloat. Suddenly, individuals who may have been on firm financial footing their entire lives are now seeing the ground fall out beneath them.

While there is no simple way out of this situation, there are plenty of resources from the government, charities and more likely than not, from your own household that can help you get by on next to nothing and perhaps regain your footing once again.

If You Can Work, Then Work

Before you start researching charity handouts, ask yourself honestly if you are physically capable of working a job. For some individuals living in poverty who may be sick or elderly, the answer may well be no. But if you can, then it may be time to change your approach to looking for work.

“Some members of the chronically unemployed may be unemployed because they can’t find anything in their line of work or they can’t find a high enough paying job, but there may be opportunities for them if they are willing to look outside their expertise,” said Patricia Seaman, senior director of marketing and communications at the National Endowment for Financial Education.

There is a time to be picky about where you work, but not when you are on the verge of being broke. Look at part-time and lower-paying positions in your industry if you are eager to stay with what you know, but also be sure to cast a wider net and research other businesses hiring in your area and, if possible, be willing to move to where businesses are hiring. Even if you can’t find a job that pays, you may still be able to create your own to help cover basic expenses.

“There are ways to barter services,” Robinson said. “If you know how to design websites, you can offer to do that for a local grocer who may offer you free groceries in return.”

Find Alternative Sources of Revenue

For anyone who can’t work or who has great difficulty finding a position that pays more than minimum wage, it may be time to look to alternate options. After all, as Seaman points out, there is just one simple formula to savings: to boost your bank account, you need to take in more money than you spend. Needless to say, none of these options are ideal.

For starters, Seaman suggests going through your possessions to find those items that you could sell which are “not absolutely essential to your household.” These may include anything from jewelry and electronics to something as significant as an extra car.

If pawning off your belongings isn’t enough to stay afloat – or if you can’t bring yourself to do it – then consider asking friends and relatives for money to help.

“If you have the opportunity to borrow from relatives who have the means, it’s time to swallow your pride and do that,” said Frank C. Boucher, a certified financial planner with Boucher Financial Planning Services.

Those who own a home might also consider taking out a home equity loan – which may be particularly appealing to older workers – though Boucher and others caution that one should be careful to do their research since these loans can put certain households at risk of falling into a negative equity position.

One option Boucher urges consumers to avoid in this situation is relying too heavily on credit cards to get by.

“Going further into debt is not the answer,” Boucher said. “Borrowing money from your credit card is just going to come back and haunt you. Instead of doing that, you should seek out your social agencies for help.”