Code Red Rx: How to recover from a financial panic attack – and how to avoid the next one
In many ways, a financial illness is easier to solve than a physical illness. Do you sometimes feel like your suffering a financial heart attack? If so, you’re sadly in good company. Turns out 85 percent of all Americans feel like that, according to a CNBC report from this time last year.
Even worse, almost a third of Americans feel like they’re having a currency coronary ALL the time. This paper covers simple, proven ways to restore your financial health – no matter how long you’ve been living with your painful financial condition.
If you’re wondering why this paper is called Code Red Rx, it’s not a gimmick – and it’s not melodramatic. Study after study has shown that financial problems cause physical problems. And Consolidated Credit’s certified counselors have repeatedly seen and heard these same reports over the past couple of decades.
The life insurance company John Hancock has a profitable reason to know exactly what kills its customers, so it researches the causes. When the company asked if financial stress affected physical health, the answer came back like as a resounding yes: “It lowers our immune function and ability to fight illness, which can make us less effective at home and work.”
Taking care of your financial health is an important part of taking care of your physical health, and we aren’t the only ones who know this personally.
Consolidated Credit hears from real people who are suffering from financial stress. It has a huge impact on their lives, and even their physical wellbeing. Here are a few of their stories; maybe they sound like yours.
There was Maria, who had nearly $8,000 in credit card bills and a credit score in the 400s – she couldn’t even move into a new apartment because her score was so low. She had maxed out her credit cards and was paying a whopping 29.99 percent in interest charges. Like many people, Maria said, “I was embarrassed about my situation and felt unsure where to begin.” But when she finally dug herself out of debt, she told us she’d never felt happier.
Then there was Sonya, who ran up $3,000 on a department store credit card at 18 years old. She told us, “I was scared. I hated answering my phone at home because I knew it would be someone asking, ‘When can you send that payment?’ I remember having my hands against the wall, I didn’t know what to do. I was desperate.” When she finally paid off that debt and the other debt she had racked up, she told us, “I felt like someone had taken the shackles off my feet.”
Finally, I want to tell you about Paula, who’s a mental health counselor who ran up big bills caring for her ailing father. When he recovered, her finances didn’t – and then she became sick from the financial stress. She told us: “As a mental health counselor I know what it looks like when people suffer emotionally. And when I became consumed with debt, I was there. I was stressed all the time.”
If you want to know more about these women’s struggles – and how they eventually conquered their debts – you can read all about them on the Consolidated website under Debt Stories. But now that we’ve scared the living daylights out of you, let’s talk about your prognosis if you’re also suffering from debt stress.
Maybe you’re thinking, “Thank God I’m not suffering from a financial crisis! This doesn’t apply to me!” If so, know this: Many money woes are caused by small spending problems that just don’t seem like a big deal. Then catastrophe strikes. There are five major ones we see all the time, and they cause your little money problems to blow up into big ones: accident, divorce, illness, layoff, and natural disaster.
So even if you think your finances are healthy, the real question is: Have you built up your money immunity? During the government shutdown of 2018, one of the big storylines was just how many federal workers didn’t have enough money in the bank to miss even one or two paychecks without having to take out a loan to cover their bills.
Less than 40 percent of all Americans have enough money saved to cover an emergency costing $1,000, according to a depressing Bankrate report from last year. That makes it hard to stay financially healthy, because just like flu season, money problems are sure to come your way eventually, affecting you or your family.
This leads us too preventative medicine. How can you bolster your money immune system? Well, an emergency fund is the easiest way, but it can be a bitter pill to swallow. Why? Because you need to contribute to it in small ways all the time. Let’s face it, when you’re facing debt stress, it’s because you don’t have enough money to go around. So how are you supposed to save? Well, the best place to start is with your pocket change. Seriously, set aside small amounts all the time. Have one less coffee from the drive-through of your favorite coffee shop. Brown-bag it once a week.
Once you get into a rhythm of small contributions, you can start building up your emergency fund to cover 3 to 6 months of living expenses. That’s the gold standard of emergency funds. How do you do that? Well, the best way is automatically. For instance, if your employer pays you via direct deposit – like 82 percent of Americans get paid – then you can ask your company to split your direct deposit. That’s right, most employers will let you send some money to one bank account, and some money to another. So you can shunt some of your paycheck directly into a separate emergency savings account. You won’t even miss the money, because you’ll never see in your primary account. This works especially well when you get a raise. Just send the extra cash directly to your emergency fund until you build it up to cover 3 to 6 months of expenses!
Time for a checkup!
What if you’re feeling a pain in your head or chest from all the debt you’re carrying? Then you need more than preventative medicine. You need a thorough checkup. But be calm. Literally, be CALM. CALM stands for create a plan, automate bill payment, lower spending, and make progress. Let’s break that down.
Create a Plan
No one likes to hear the words, “make a budget.” But it’s so easy to do it these days. If you don’t relish the idea of putting pen to paper, there are scads of online programs that will do the mundane work for you. Online budgeting tools are safe and they’re easy. You simply type in the amounts you spend in different categories, and these powerful tools do the math for you. They also let you see how much you can save per year by shaving off just a few dollars per week. For instance, if you type in the cost of one less work lunch per week that you buy, you can see how much that will save you per year.
Automate Bill Payment
Here again, embracing technology can help you save more in less time than ever. We mentioned this technology earlier when we talked about an emergency savings account. But instead of just automating your savings, you can automate your payments. Almost every bank and credit card – and even many municipal utilities – offer automatic bill pay. You set the day when you want a bill to be paid, and that amount is automatically deducted from your bank account right then, and not a day sooner. What’s the advantage, besides the worry of paying bills? You’ll never pay a late fee again.
Of course, a danger of automatic bill pay is that if you blow your budget on some debit card purchases you’ve forgotten, you might not notice how low your bank balance is getting. That’s why it’s so important to cut your spending. And since we’re talking about health and debt, let’s compare spending to dieting.
Sure, you can go on a crash diet and shed a lot of pounds. But that’s also called a yo-yo diet, because you just can’t maintain that forever. Same thing happens with money. If you cut spending so drastically that you suffer through the day, eventually you’ll crack and go on a spending binge.
Instead, just like dieting, make lifestyle changes. Do you clip coupons? Do you search out BOGO deals? Have you looked at all the subscription services you’ve signed up for to make sure you really use them? There’s no shortage of ways to save, and they’re as easy to find as an Internet search.
If you take this advice, you won’t notice a big change right away. Again, this is like dieting and eating right. You don’t wake up a day later weighing less and feeling better. It takes time, and the progress is gradual. But one day, you suddenly notice things: “Hey, my body is lighter and my wallet is heavier!” So the last part of CALM is maybe the most important. Be patient and you’ll see progress. We guarantee it.
Why Budgeting is so Important
Now, another component that you should keep in mind, which is just as important as having a savings cushion, is the plan of how you are going to get there. Planning your budget should be top of mind. Before you can be save, you need to get your financial house in order and that is why you need is a budget.
That sounds awful, doesn’t it? Who enjoys budgeting their money? That’s like saying you enjoy flossing your teeth. In both cases, you know it’s good for you, but it sure doesn’t sound like fun. Well, we can’t help you make your dental hygiene easier, but we can help you make budgeting easy. It only takes four simple steps.
So far, we’ve been talking about saving money. But let’s talk for a moment about making it. A budget needs money coming in before it can track money going out. So add up all your income – which is more than just your paycheck. It includes money from any part-time or freelance work, child support you receive, rent you charge, and Social Security and other income from benefits. Once you add all that up, you have your net income.
Even more than hidden income, many of us suffer from hidden expenses. To keep track, think of your expenses in three buckets:
- Fixed expenses are those you can’t easily change. If you pay rent or a mortgage, those amounts are the very definition of “fixed.” But so are car payments and insurance.
- Flexible expenses are those you need but can do something about. So for instance, you need to go grocery shopping, but you can look for BOGOs, clip coupons, and use strategies for getting more food for less money. Same thing with gasoline for your car and your utility bills.
- Discretionary expenses are those you can live without if you really had to. We’re talking about a movie matinee, a nice dinner out, or that fancy hair salon you like.
The total of these categories is your net expenses.
If you have $2,000 a month in expenses and $2,500 a month in income, then you’re “in the black” by $500. If those numbers are reversed, then you “in the red” by $500.
If your income is greater than your expenses, congratulations! You now have the pleasant task of deciding how to best use your savings. But if your expenses outstrip your income, time to set some priorities.
You need to decide what steps you can take to either reduce your monthly expenses or increase your monthly income – or both, if you can. Let’s break that down.
How to Manage Your Budget
Before we get into the nitty gritty of saving secrets, let’s review how you’ll track your progress. You just learned how to start your budget, now let’s talk about maintaining it. It may help to keep a spending diary for a month or two. This means saving your receipts and writing down the items and amounts for everything you spend.
If that sounds like a chore, there are free, secure online tools to help you monitor your spending. One of the most popular is called Mint, but there are many others, sometimes offered through your bank. So go check them out.
What is “saving,” anyway?
Sure, you could stuff some cash under your mattress every so often. But that’s not the smartest saving tactic. First you need to be clear about what you want to save for, like buying a house, sending your children to college or just simply going on a vacation. Then, you should establish savings goals with a plan on to hit those goals. So let’s talk about that…
Examples of Saving Goals
Your goals can be serious and major – like saving three months of living expenses for an emergency fund. Anyone who’s followed the recent government shutdown knows how stressful life can be if you miss just a couple of paychecks. So that emergency fund isn’t just a financial goal – it’s also a mental health goal.
But some goals are actually fun. Saving for a vacation can make saving easier because you can think ahead to sun-kissed beaches or powdery ski slopes. And while saving for a down payment on a new home seems daunting, it can be exciting to take those first steps to such a life-changing event.
How to be SMART about Saving
So how do you set your savings goals without consulting an encyclopedia? Just remember the acronym SMART. Here’s what it stands for…
Specific is the easiest to do. Think of it like this: Instead of saying, “I want to lose weight,” you’d say, “I want to walk 10,000 steps during breaks at work and after dinner at night.” That specific goal is easier to meet than a vague one.
Measurable means setting targets you can easily track. So let’s look back at the goal of losing weight. If you promise to walk 10,000 steps a day, there are apps on your phone that can easily measure that. There are now apps that can help you manage the money coming in and what you are spending on. You’d know every day if you’re living up to your own promises.
Achievable means figuring out how to get where you want to go. You need to develop the attitudes, abilities, skills, and financial capacity to reach them. For example, even a modest goal isn’t achievable if you set too tight a deadline. Losing 20 pounds in a year is achievable – but in one week, it’s dangerous. You can also say, I will stop buying fancy coffee and a pastry every morning in my way to work and save about $7 a day which amounts to over $1,800 at the end of the year.
Realistic means not setting impossibly high goals. If you tell yourself, “I plan to eat only salads every day for a year and never even look at a dessert,” then that’s a specific and measurable goal – but it’s also never going to happen. Using the example of buying your morning coffee, we are not suggesting that you cut out coffee entirely, just the expensive one in the morning. You can have the coffee at work and then make it a special treat in the weekend… you’ll be saving a lot.
To be realistic, a goal must represent an objective toward which you are both willing and able to work.
Timely means setting a deadline that’s as soon as you can comfortably hit it. Too many goals come with the vague deadline of “soon.” Even a big New Year’s resolution that takes the entire year isn’t as good as smaller goals each month.
How to Save on a Tight Budget
The next time you’re tempted to buy something, ask yourself…
Do I really need this item?
And before you say YES, answer these follow-up questions:
Is this item worth all the time I spent making the money to pay for it? Can I use my money in a better way right now? And of course, the hardest question of all: Do I really need this or do I just want it?
While waiting for sales and using coupons are effective and time-honored techniques, those savings don’t matter if you actually didn’t need the item.
8 More Ways to Save Money
Of course, there are more than eight ways to save money. But we’ve found these eight to be the least time-consuming and the easiest to stick with. They work because the small savings add up over time. That’s more lucrative than trying to save big every so often. It’s kind of like dieting: You want to make small lifestyle changes instead of enduring crash diets. Here are your financial lifestyle changes:
Treat yourself, then save yourself.
It’s called “nonessential indulgence-matching.” But that’s a mouthful. It just means every time you treat yourself, you treat your savings account, too. For example, if you splurge on a gourmet coffee during a lunch break, you put the same amount of money into your savings account. Sound weird? Think of it this way: If you can’t afford to save the matching amount, you can’t afford that treat, either.
Think about hours, not dollars.
Time really is money. Calculate a purchase by the hours you worked to get it, instead of the money it cost you. Just divide the price tag by your hourly wage. If it’s a $50 pair of shoes and you make $10 an hour, ask yourself: Were those shoes really worth five long hours at work?
Sleep on it.
Time is money even when you’re not doing anything. It’s called the 24-hour rule. It’s the antidote to impulse buying, and it’s so easy. When you find that non-essential must-have, wait until the next day before buying it. This works especially well online, because shopping websites specialize in luring you into immediate decisions that can cost you.
Don’t think about it.
Hands down, the best way to save is without even worrying about it. That means setting up automatic savings. Most employers will let you deduct a certain amount from your paycheck and transfer it into a retirement or a savings account. Best of all, it costs you nothing in either money or time. You never even notice the money is gone. This is a great way to “spend” any raises you get. Ask your HR representative for more details about setting this up.
Earlier, we mentioned high-tech online budgeting tools like Mint. But some people do better going old-school. They budget with cash and envelopes. It’s simple: Label an envelope with each monthly expense, and put cold, hard cash into each envelope. Draw from the envelope when you pay those expenses – and once the money is gone, hey, it’s gone. That’s one dramatic way to curb your impulse shopping.
Decide between paper or plastic
You’ve probably heard about credit cards that offer cash back and other rewards. It’s true, you can save big with these rewards. But you can also spend big. These cards compel you to overspend to chase those points, which means you run up balances that charge high interest. You might actually save more money cutting up the plastic and go all-cash. In fact, there’s solid research showing we spend less money when we have to part with paper than swipe plastic.
Be bad at math.
Sounds weird, right? Up till now, we’ve been encouraging you to budget better. But you can actually save by being vague. Here’s how: Some financial institutions will round up your debit card purchases. For example, Bank of America will round up to the next dollar amount – and put the change into your savings account!
To bring this back to the beginning, save those pennies. Loose change adds up. Keep it in a jar or piggy bank, and you’ll be amazed by how much it adds up. Get started by checking your car and those seat cushions and kitchen junk drawers. You’ll be surprised how much money you have in the house – and you never knew it!
The Storm After the CALM – Coaching!
If you embrace CALM and started to act SMART like we just talked about, but still feel stressed out by your finances, there’s another C to consider. It’s called coaching. Once again, let’s compare this to your health. If you eat right and exercise, you’ll probably be physically fit. But every so often, you’ll get sick, and sometimes, home remedies don’t work. You need to see a medical professional.
Well, sometimes your finances get sick, even when you do everything right. We talked earlier about natural disasters, illnesses, and family problems – and how they can blow up your budget. Sometimes, a small bad habit grows into a big money ailment. When that happens, you need to consult a financial expert.
Luckily, you can talk to a financial expert easier than you can consult a doctor. First, you don’t need an appointment. You can call a certified credit counselor at a nonprofit credit counseling agency at almost any time. Second, it’s free – no co-pay. You can receive a free debt analysis that will help you figure out how to get financially healthy.
Of course, just like doctors, some financial counselors are better than others. Experts say to look for these things: The agency should be around for many years – decades, hopefully. It should have certified counselors, which means they take a standardized test to ensure they know what they’re talking about – and they have to retake it every two years. They should have the highest rating for the Better Business Bureau. And finally, they should have many excellent reviews from reputable review websites.
Fortunately, Consolidated Credit hit all those marks. It’s been around for more than two decades, and each and every one of its counselors is certified – and re-certified. It’s BBB rating has been tops forever, and so have the reviews.
If you’re suffering from financial illness and the stress that goes along with it, call Consolidated Credit today. Don’t suffer another minute when the cure is at your fingertips!