As a child, my Uncle Andy and Aunt Anita bought my sister and I a book by James Stevenson called Could be Worse. It was a humorous book about an old man who’s favorite response to any sort of complaining—such as when his grandkids get a splinter, or their kite flies up into a tree—is “could be worse”.
We’ve come to learn in the last year that things always ‘could be worse’. In the wake of the recession, most financial experts advised us to set up an eight month emergency savings fund (instead of the normal 3-6 months) for when the unimaginable happens.
But what if you are one of the people who does not have this in place, nor has the means to put this in place in the near future? What bills can you shed quickly and easily (i.e. without huge termination fees) in order to make ends meet at the end of a very long month?
Should the unimaginable happen to you, it is best to come up with a worst-case scenario plan so that you can weather the storm, even if you do not have an eight month emergency savings in place. To help get you started, here are some ideas that my fiancée and I have come up with for our plan.
Worst Case Scenario Plan
- Stop Overpaying on Debts: Currently we overpay on our car loan and student loan, so we would immediately go back down to the minimum payments on these. Freed Up Cash: $200 per month
- Defer Student Loan Payment: In fact, I would probably get rid of my student loan payment all together. I have a student loan that is serviced through Sallie Mae. If I need to, I can defer the loan for reasons of hardship (including losing job, medical, financial, etc.) Find out through your own provider if your loans qualify for a deferment, and what the time period is that you may have available to you if you find yourself in a situation where you need to take advantage of it. Freed Up Cash: $250 per month
- Cancel Cell Phone Plans: There are ways to get out of your contract, without having to pay the early termination fee. One of the easiest ways is to find a person who will assume the rest of your contract for you (and your cell phone number). If you find a willing person, you both can call up the cell phone provider and get the contract transferred. Check out online sites that pair together people who want a cell phone contract to people who want to get rid of theirs, such as Celltrade. Another way to get out of contract for free is if your service provider changes its terms of services in anyway, you can void the contract (this happens frequently so take a look at your last month’s bill for any indication that this has occurred). Typically you are given 30 days from the change notification to cancel the contract with no charge. Freed Up Cash: $150 per month
- Temporarily Suspend Car Insurance: Paul and I could both carpool in our Nissan truck, and temporarily suspend the car insurance payment to our Mustang (which is twice the cost of insuring the truck) through our insurer Allstate. By temporarily suspending coverage instead of stopping coverage all together, you still need to pay a small fee (ours is $11 for the six month period), but you will not lose any loyalty program perks, or have coverage gaps in your insurance. Freed Up Cash: $90 per month
- Cancel Cable/Internet: Currently we are with AT&T Uverse, which is month to month (and is the same cost as when we were with Comcast). So canceling our services is a no-brainer for us. If you having difficulty paying your cable bill, you can always call the customer service and ask them to temporarily suspend your services until you get back on your feet. Freed Up Cash: $85 per month
- Transfer Credit Card Debt to 0% on Another Card: We do not carry credit card debt; however, we do charge everything to our credit cards to earn reward points, and then pay it off before the grace period ends the next month. So potentially, we could be stuck with last month’s credit card bill and not be able to pay it. If this happened, then we would complete a balance transfer to a 0% interest card for the longest term we can get (6-12 months).Freed Up Cash: $40 per month
- Eat Through Our Pantry: Our pantry and freezer are typically stocked up with lots of grocery and drugstore deals that I find. Instead of shopping for groceries (other than bread, milk, fruits and veggies), we would probably try to make use of what we have in our stockpile. Freed Up Cash: $100 per month
- Temporarily Suspend Retirement Contributions: Since we are talking worst-case scenarios, we could also temporarily suspend our retirement contributions, which is certainly better than tapping our retirement savings. Freed Up Cash: $800 per month
Once we put this worst case scenario into place (and of course I hope we never have to), then we can free up approximately $1715 per month. These are all just temporary fixes, but the idea is that hopefully we can get ourselves back on our feet again in 2-3 months.
What things would you add to your own worst case scenario plan, or what things have you had to do in the past to balance your budget in a tight situation?