Financial CPR: C is for Cash Flow Plan

This post is the first installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Remain in control.
Though the interruption to your income may be out of your hands, it does not mean that your entire financial life is out of control. Stay calm. You have the power to make choices, minimize the debt or damage to credit that you will incur, and plan for a successful financial recovery once you’re employed again.

Remember that you always have options.
Usually the best options are available when you act pro-actively instead of waiting until the problem becomes a crisis.

Follow the Four A’s to create a Cash Flow Plan:
1. Acquire information

• Tally up your cash on hand;
  
• Survey your expenses and income to get a complete financial picture;
• Read your contracts and user agreements to see what opportunities there are to cut or change service plans, memberships, etc.;
• Solicit price quotes for comparable services;
• Identify opportunities for “found money” – items you can return to stores for refund or credit, gift cards, etc.
  

2. Analyze

• What can be cut?
• What must be protected?
• Are there ways to increase income?
• Do not make random, haphazard, or emotional changes. Work purposefully.

3. Adjust

• Take steps to make the identified changes.
• Schedule time to make a few calls a day; don’t try to tackle everything at once.

4. Ammunition

• This information = power!

Serenity now!
Even if you are still operating at a deficit, you can be confident that you have done everything you can to minimize the deficit and put yourself in the best position to get back on your feet quickly once you’re back to work.

Financial CPR: P is for Protect Yourself

This post is the second installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Anticipate problems.
Look at your Cash Flow Plan and determine which bills you’re going to be late on or unable to pay.

Educate yourself.

• Use your Cash Flow Plan as a guide to all your actions;
• Understand your position as a consumer (How valuable is my business? How long have I been a customer? What rates are fair for other people in my circumstances?);
• Have a copy of the Fair Debt Collection Act;
• Read your lending agreements;
• Learn about your repayment options;
• Know the terms of default and consequences of default.

Prioritize.
Put your bills in order of their importance in terms of consequences for non-payment. For example, not paying your mortgage could result in eventual foreclosure and losing your house. Not paying your credit card bill in full could damage your credit but will not otherwise threaten your security.

Know what you’re asking for.
Before you dial the phone, have a plan for what you want. Do you want to skip payments? Do you want to make interest-only payments for a period of time? (Remember to research what your repayment options are ahead of time.)

Contact your creditors.
Taking the initiative to contact your creditors will keep you in the driver’s seat. These companies are much more willing to work with you if you don’t make them chase you down after payments have already been missed.

Know what you can deliver.
Your credibility is absolutely priceless. Never promise something you know you can’t follow through on. It destroys your credit and may lead to harsh penalties and punitive action on the part of the lender or service provider. Even if you think what they’re offering you is a “good deal,” DO NOT accept it if you are not able to deliver. It is better to get off the phone without reaching an agreement than to agree to the impossible.

Negotiate.
Try to get the best deal for yourself. Remember, credit terms are not about your value as a person or how likeable you are. This is a business transaction, and you will only get as much as you’re willing to ask for. If you feel like the person you’re talking to is not willing to negotiate, ask to speak with someone else.

Go up the chain of command.
Oftentimes the people you get on the phone the first time are not authorized to make a deal. Ask to speak with a supervisor (several times if you need to) and keep going until you get to someone who has the authority to make a decision.

Don’t take it personally.
Creditors have been known to use every trick in the book to get you to make an emotional decision if it means they get their money. They will try to make you feel guilty for not being able to make your payment. They will try to manipulate you into prioritizing their payment over your other (more vital) obligations. Do not be fooled. Know your rights and know what you can realistically and reliably deliver.

Be accessible.
Even if you can’t make any payment at the present time, you still earn credibility points by staying in touch with your lenders and apprising them of your situation. This doesn’t mean you have to take the time to talk to every single collections agent who calls your house. Make appointments to return their calls, and then follow through.

Borrow judiciously.
During a financial crisis there is always a temptation to hold on to your cash and to live on credit. Sometimes this is inevitable, but you always want to think carefully about how you go about it. Get the facts. Credit cards offer flexibility but high interest rates make revolving debt very expensive. Tapping into home equity can be lower cost but puts your property at risk. Retirement accounts are protected from judgment even during bankruptcy – don’t touch them if you can possibly avoid it!

Think about the long-term.
Carrying debt should never be the long-term plan. There is too much inherent risk for debt to become unmanageable if anything interrupts your ability to pay. Try to minimize how much new debt you’re incurring during this time by keeping your expenses as low as possible.

Financial CPR: R is for Recovery

This post is the third installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

This situation does have an end.
At some point, the unemployment crisis will be resolved and it will be time to think about how to get back on your feet. Ideally you will have:
o Kept your monthly deficit to a minimum;
o Protected yourself from penalties due to non-payment of accounts;
o Incurred as little new debt as possible.

Don’t zone out!
When you have been through a period of high stress it’s normal to want to decompress once the worst is past. You may feel an overwhelming “urge to splurge” and buy yourself those comforts you’d been denying. But before you throw out your budget, take a deep breath and pause.

Create your Recovery Cash Flow Plan.
Now that your income is back on track, you will need to move forward with paying your regular bills and addressing any debts you accumulated during the interruption. Your Recovery Cash Flow Plan should allow for the following:

Net Income
(minus) Fixed Expenses (reg. housing payment, reg. car payment, utilities, etc.)
(equals) Discretionary Fund

Take the Discretionary Fund and subtract your necessary out of pocket costs. Then try to budget for one non-necessary treat if you can, such as a monthly movie with the family.

Discretionary Fund
(minus) Out of Pocket (groceries, gas, parking, etc.)
(minus) ONE treat (if you can afford it)
(equals) Repayment Fund

Resume payment on your regular bills.
Once you have income again, begin making on-time payments on all of your regular bills. This does not necessarily mean that you return to all of your pre-unemployment expenditures. If you reduced your cable package for example, you may need to continue with the lower-priced plan for awhile until you’ve paid off some debts.

Determine your proposed repayment plan.
Divide the amount in your monthly Repayment Fund by the number of creditors for an equitable repayment strategy, or direct more of your resources toward certain accounts to give them priority.

Re-connect with your creditors.
Using your Recovery Cash Flow Plan as ammunition, contact your creditors and propose the terms of repayment. You may need to negotiate like crazy to get your creditors to accept the plan, and you may not be able to budget for the “treat” at this time. But try to resist at all costs having to miss payments on any of your regular bills in order to repay debts.

Be secure for the future.
Once you’ve paid up all of the debts, convert your Repayment Fund payments into a Contingency Fund payment. Try to have three to six months of financial reserves for any future disruption in income.