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.”

Programs that Help Get You on the Right Track

When most Americans think about emergency assistance programs, the first one that probably comes to mind is food stamps, but there are many other programs in communities around the country that can help low income families shoulder the cost of energy bills, prescriptions, housing and more and so they have a better chance of getting back on their feet. You just need to know where to look.

Financial Planning Assistance: No one needs the advice of a financial planner quite as much as someone who has run out of money, but it may take some extra effort to track down one that doesn't charge you for their services. Luckily, many charity organizations can connect low-income families to planners who do pro bono work. Some centers affiliated with the United Way provide access to planners who will assess the individual’s fiscal situation and help develop a plan to improve it. Likewise, the Community Action Partnership, a national organization that fights poverty, boasts HUD-certified counselors who can act as an intermediary for homeowners to renegotiate their mortgages.

LIHEAP: There are several nonprofit and government programs that help households cut their energy costs, but the Low Income Home Energy Assistance Program (LIHEAP) is particularly helpful. The federal government provides block grants to help weatherize low income households – by installing insulation, for example – so that the home functions more efficiently and the monthly energy costs are lower. The requirements for this program vary somewhat from state to state, but applicants typically need to be at or near the poverty level to qualify.

Section 8 Housing: If the individual can no longer afford the cost of a home, this government program will provide him or her with a cheaper option on the market. The Section 8 housing program is intended to help low-income families, the elderly and the disabled gain access to safe housing. To qualify for the program, the family’s income generally can’t be more than 50% higher than the median income in their county. The housing isn’t free but the family need only pay 30% of their monthly income for rent – whether that income is $500 or $5,000.  The program is intended to help low-income families, the elderly and the disabled find a decent play to live when they need it.

Emergency Medical Funds: One big concern for the elderly living in poverty is finding ways to cover prescription drug costs, but many programs do just that. The AARP provides a simple-to-use directory that lists all the available programs by state.

Individual Development Accounts: Finally, the federal government provides grants to nonprofits and government agencies to help them administer special savings accounts known as Individual Development Accounts for low-income individuals. The account works similarly to a company 401(k) in that every dollar the individual puts into the account is matched by funds from the grant until the account hits $2,000. The goal is to provide an incentive to get families with no money to start building up their savings again and with any luck find their way to more stable fiscal ground.

For more programs in your area, you can dial 211, a confidential call center service run by United Way which can direct callers to the relevant programs in their area.

—For a comprehensive credit report, visit the BankingMyWay.com Credit Center.

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