What you'll need to do when your rainy-day fund is gone

I remember a few years back when a guy who lived on our block asked my husband to borrow $5. We didn't really know the guy, but he said he was going through a divorce, had custody of his kids and needed money for the bus to get to work. My husband gave him the money and although I was skeptical of his story, my husband said that if he didn't really need the money he wouldn't have asked. I'm sure he was right. The man never asked my husband for money again, and whenever we saw him and his kids he'd wave and say hello.

I thought of this man recently because he was obviously suffering a financial crisis and felt that swallowing his pride and asking neighbors he barely knew for money was his only option at that point. (We heard later that he had asked another neighbor for money once, too.) If you've used up your rainy day fund (or never had one) you may be feeling desperate like that man. While I don't suggest that you resort to asking strangers for money, you are going to have to make some tough sacrifices.

Keeping a roof over your head, heat in the house, and food on the table should be among your priorities, not paying for expensive cellphone, cable TV, movie rental, and gym plans. I'm always amazed at people who tell me they are having a difficult time financially, but then mention that they just left the hair salon, bought new shoes, or saw the latest action flick at the movies. If you are truly experiencing financial hardship, you will have to make huge sacrifices.

You may be able to find a part-time or temp job, or work from home to pay your housing costs. But if you can't find even a low-paying job, go out and shovel snow or do odd jobs for neighbors if you need to since it's honest work. If you own a home and need mortgage payments, you might want to consider renting out a room to a friend or family member who can help with bills.

You'll probably need to budget for transportation to job hunt, run errands or chauffeur your kids. But if you live near reliable public transportation, use it. Walk as much as possible for nearby errands. If you don't have access to a bus or train, plan car trips to get the most bang for your buck. Shop for groceries that are on sale and use coupons. Skip the fast food, cut down on junk food and cook hearty meals from inexpensive ingredients.

If you need to raise cash fast, look around your house and sell items you can do without (yes, even your big screen TV). If you are really desperate and have money in non-retirement investment accounts, you may need to sell some of your assets and deduct the losses on your tax return. You can even borrow against the cash value of a life insurance policy if necessary. While financial experts advise against cashing out retirement accounts, the fact of the matter is that at some point you may be faced with no other option to prevent a foreclosure or bankruptcy. Of course taking this taboo step means you'll have to re-plan your retirement strategy. Also, in some cases, filing for bankruptcy may actually make sense.

Desperate times call for desperate measures. Carefully assess your situation to make sure you've done everything possible that's legal and within reason to keep your head above the financial waters.


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