How to Survive a Financial Crisis

As the credit crunch tightens and the markets tumble, you’re probably looking to cut expenses in your daily life and start shoring up for your future. Even if you’ve spent the past 3,000 days playing fast and loose with your finances, it’s not too late to reevaluate your views on money, discover where your paycheck disappears to each month, and build a budget around your long-term goals. Living within your means now will pay off immediately in emotional rewards, and in financial rewards for years to come. Here’s how to start.

1. Shine a light on your records. First, know what you owe. Pull together your outstanding debts, including car loans, credit cards, mortgage payments, and student loans. Sometimes it’s a relief to see what you’re up against in black and white (and maybe red). Often it’s the “not knowing” that’s the most stressful. Embrace the truth of your situation and you’ll be one step closer to being debt free.

2. Know where your money goes. This is arguably the most difficult part of getting control of your finances. Stick an index card in your wallet and jot down every purchase you make, no matter how small. Do this for one month, then divide your expenses into two categories--things that are necessary, and things that aren’t (here’s a hint: food and shelter are necessary, weekly manicures and poker night with the guys are not). Weigh the immediate gratification of “I-want-it-now” impulse buys against your long-term savings and debt-repayment goals and you'll see that foregoing small conveniences now will trump more stress later. A site like Bankrate.com can help you create a budget. Adjust it until you find a balance that will work in the long-term. When you save on what you don’t really need, you can spend more on what you do.

3. Wrangle your debt. If you have credit card debt, transfer a balance to one of your cards with lower interest. You’ll save money in interest, lower your debt ratio, and improve your credit score. Only use your cards if you can afford to pay them off immediately, otherwise lock them in a safe-deposit box or stick them in your freezer (seriously!). Experts suggest you then pay off the card with the highest interest first, move to any that are maxed out, and follow with the ones that carry the lowest balances. It might take time, but you can become debt free when you create a plan and stick to it.

4. Minimize your lifestyle costs. As winter approaches, there’s talk that our energy bills could increase by 15% or more. Check your insulation and invest in thick curtains since about a third of the heat in a home is lost through the walls and windows. Buy energy-efficient light bulbs (and don't forget to flip the switch when you leave the room). Find the cheapest gas prices in your area by searching Gasbuddy.com, Gaspricewatch.com and Altfuelprices.com. Cancel subscriptions that you rarely (or never) use, call to negotiate lower rates on your cable and internet bills, and bundle your insurance policies with one company. Finally, make your "big ticket" items cost less--if you're paying more than 40% of your salary on your house and insurance, either refinance or consider selling and moving to a smaller home.

5. Remember that you’re not alone. Schedule weekly meetings with your partner so you’re on the same page. You don’t need to bear this burden alone, and talking about your finances will paint a vivid picture of the future you envision for yourselves. If you’re single, consider having a friend help you stay accountable to your new frugal lifestyle. A non-profit consumer-credit counseling service can also help, as you’ll be able to obtain free or low-cost help with your budgeting, a payoff plan and your negotiations with creditors. Do your research first, or for a referral, visit the National Foundation for Credit Counseling site at NFCC.org.