A good budget can help when the unexpected occurs. But when you suddenly lose income, as many families have in recent months, a budget becomes even more important.
"Budgets change all the time," says Molly Barackman-Eder, senior manager in financial capability at NeighborWorks America. "If you've had a change in income, this is a good time to think about a budget as an organizing tool."
Barackman-Eder says many people think of budgets as restrictive. They provide guidance, she says, and help keep track of what money you have coming in and what money you have going out.
"It's about looking at past bank statements, past credit card bills and where your money has gone in the past," Barackman-Eder says. "That gives you the information you need to make choices going forward."
The differences between a crisis budget and a regular budget lie in the next steps you need to take. With a crisis budget, the next step is often contacting creditors. When you make a crisis budget, one of the first things to do is list all the places where you owe money, Barackman-Eder says. That can be helpful because it's also a list of people you need to contact next.
"Treat it like a to-do list," Barackman-Eder says. "See where you have flexibility. Cancel subscriptions you don't need. If you're not driving your car as much, go into your car insurance and change the number of miles you drive per day. That can change your fees." A budget is the "tool you need to go from being in a panic to having a plan."
Providing communities with tools for better financial health and homeownership is one of the many ways NeighborWorks organizations help – particularly when residents are facing hardships. Wyoming Housing Network Inc. (WHNINC), a NeighborWorks network organization, created a crisis budget tool last month (currently available on the group's homepage) after seeing how helpless many housing counselors and unemployment officials felt. People were increasingly panicked about layoffs or the fear of them, says Melissa Noah, director of housing education.
"We wanted to give people something solid so they could take action," Noah says. "If you're getting paid week to week, this is a week-to-week budget. It's about protecting what's important; your basic needs." Noah adds that WHNINC is happy to share a Word version of its crisis budget packets with organizations that would like to make their own, using the WHNINC packet as a model.
During stressful times, people sometimes make cuts where they shouldn't, Noah says. They may not fill needed prescriptions as a means to save money, for example. "But down the road, that's a bigger problem." The budget tool helps individuals rank and assess their needs.
To create the tool, Wyoming Housing Network staff pooled their knowledge. They wanted to make sure residents using the tool would focus on their basic needs. "We also wanted to make sure they had a plan for their economic impact payments.
"It's kind of a triage tool," Noah says. How do you decide what can wait? How do you decide what to do first?
"Look at what your basic needs are," Noah suggests. "You have to feed your family. You have to have shelter. And then do the basic math. Are we negative or are we positive?"
Noah says that while transportation is a basic need, many major lenders are deferring payments for people with car loans for customers who contact them. "If you can free up a few hundred dollars, you can roll that into your mortgage payments," she says. "Work the steps. Do the budget. Figure out what can wait."
Often when people are facing foreclosure or other financial crises, they shut down. "We don't want them to freeze or shut down. This is a small step that gets the ball rolling and gets people moving to take care of themselves," Noah says.
The budget tool also explains what creditors can and what they can't do. It prepares residents to take action and to talk to creditors. And it's flexible, Noah says. "Maybe they have anxiety or stress because they don't know what's coming down the road. If they do the packet, they know where they stand. In this time of crisis, it's a tool anyone can use."
WHNINC has been getting attention from local TV and radio and partners in the region. "They're all looking for something to give to people," she says. "We were trying to get out there ahead of the storm."
Barackman-Eder says there's no doubt that people will have to make hard choices. But don't ignore those choices – or your bills, she says. If you do, "you could be setting yourself back in the future."
Budgeting tips from Noah and Barackman-Eder include:
- Know what's rumor and what's reality: While there are some federal and state policies in place that provide relief, they're not automatic. If you can't make a payment, contact your landlord or lender to see what relief is available.
- Remember: When you have an official plan in place with creditors and lenders, it also helps you protect your credit score.
- If you're still employed but worried about the future, don't call your landlord or lender just yet. Many have long wait times, and Barackman-Eder suggests saving those slots for the people who truly need them. Instead, address financial anxiety by building up your savings or adjusting other areas of spending.
- Beware of scams, high-interest loans and high-interest credit cards.
- Reach out to a NeighborWorks network organization to find a financial program service near you.