When your income drops suddenly, your first concern may be to pay your bills and meet your day-to-day expenses. Instead, looking at your total financial picture can help determine which assets you have that could be used to meet your obligations.
In most cases, uncertainty and financial neglect increase the stress associated with income loss. Take some time, then, to study your current financial and family resource situation.
Once you know the figures in black and white, you can develop a plan for making the most of family and community resources. A little knowledge goes much further than either imagining the worst or ignoring reality and neglecting bills.
A key to accomplishing anything is beginning properly. Good financial management begins with determining your family's current financial position, or net worth.
A net worth statement is a financial balance sheet. It's a calculation of your assets (what you own) minus your liabilities (what you owe). Preparing a net worth statement will help you get a clearer understanding of your financial resources and make decisions about how best to manage them.
A statement of net worth provides an important picture of financial well-being, a "snapshot" of the family financial situation today.
Lending institutions usually require a net worth statement before issuing or renegotiating a loan, so it is wise to take the time to do this before you talk to bankers or creditors.
Taking this financial "snapshot" has a few additional advantages. Chances are, preparing a net worth statement will lead to a pleasant surprise: the financial picture may be rosier than you imagined. By comparing "snapshots" as years pass and events change, you will gain a picture of your progress from one year to the next in meeting your family's goals.
To get underway, pull together all important financial records. These include current and past income tax returns; all insurance policies-including life, automobile and other vehicles, accident, disability, health, homeowners, and liability.
Dig out information regarding company benefit plans, the current status of any accounts you might have such as pensions, annuities, profit-sharing plans, or stock options. Compile current records of balances in savings and checking accounts, on charge cards and store accounts.
Once these documents are located, you can begin the net worth statement. Be sure to add any items that are not already listed on this form. Remember, the objective is to determine your financial worth.
After you have totaled both your assets and your liabilities, you are ready to subtract total assets from total liabilities. What's left is your net worth.
Take a good look at what you have written down and answer the following questions.
Using your savings is one way to supplement your income during periods of unemployment. Be cautious, however, about using savings for things that aren't high priority. Otherwise, you leave nothing for emergencies such as unanticipated repairs or medical bills. Setting spending priorities and decreasing expenses are essential steps in making the most of your assets.
Another source of funds to help carry you through a financial crisis is selling property that you may no longer need, could do without, or can't afford to keep. Survey your house, basement, garage and attic for items that could be sold.
You can't sell any of your possessions without finding someone willing to buy them. Think about ways you can inform prospective buyers of what you want to sell.
Community bulletin boards in supermarkets, shopping malls and laundromats are very popular for posting "For Sale" notices. Cards with small tear-off tabs listing your phone number and the item for sale make it easier for buyers to call you. Other inexpensive ways to advertise your sale items are radio call-in shows that allow for sale items and classified ads in newspapers.
Make a list of your family's non-financial resources. These can be used to cut costs, barter for needed goods and services, or produce income.
Most family members can probably contribute in some manner to running the household more economically. Perhaps a teenager can do odd jobs outside the home. Perhaps the skill or hobby of a family member can now produce income.
Another source of income may come from belongings that you could sell. Maybe a parking space or a room in the home can be rented to help with expenses. Be imaginative in assessing all of your resources and in deciding how they can be used best in difficult economic times.
Kansas State University, Extension Service. "When Income Drops." 1983.
Lank, Avrum. "Personal Balance Sheet Makes Sense." Milwaukee Journal. December 11, 1986.
Texas Agricultural Extension Service. "Coping with Unemployment." 1988.
University of Minnesota. "Getting in Control of Your Finances." 1984.
Reviewed by Mabel Dianna Edlow, Extension Specialist, Virginia State University
Virginia Cooperative Extension materials are available for public use, reprint, or citation without further permission, provided the use includes credit to the author and to Virginia Cooperative Extension, Virginia Tech, and Virginia State University.
Issued in furtherance of Cooperative Extension work, Virginia Polytechnic Institute and State University, Virginia State University, and the U.S. Department of Agriculture cooperating. Edwin J. Jones, Director, Virginia Cooperative Extension, Virginia Tech, Blacksburg; M. Ray McKinnie, Administrator, 1890 Extension Program, Virginia State University, Petersburg.
May 1, 2009