By Jane McNamara
GreenPath President and CEO
As U.S. Bankruptcy Judge Steven Rhodes recently announced that pensions can be cut for City of Detroit retirees, as part of the Chapter 9 bankruptcy, GreenPath wants to remind pension holders that they need to have a plan in place, in case their monthly income is reduced.
Many of the City of Detroit retirees, and other retirees, rely on their pensions as steady monthly income. It is crucial that retirees start to look at their monthly budget now and talk about possible scenarios where income could be reduced in the future.
Anyone who is in a difficult financial situation, not just Detroit pension holders, will benefit from looking at their income and expenses.
Some steps to consider:
Have the Talk – Communication is essential, when it comes to personal finance. Individuals should sit down today with their spouse and family and have an honest discussion about money.
People have misconceptions about how they should use money in a household. Some view money as something they should spend freely each month, while others look at money as something that needs to be saved.
Retirees need to talk now about what steps they will take today, in case their income is drastically reduced in the future.
Set Up a Budget – Many people think if they have money in their account at the end of the month, they are doing okay. While this may work in some cases, individuals who may see a drastic cut in their monthly income will need to prepare ahead to make sure their expenses are covered.
A simple way to build a budget is to list all income (pension, part-time work, etc.). Then, list all your major expenses (mortgage, car payment, insurance premiums and utilities, etc.) and subtract from your net income. From there, track other expenses, like groceries, gasoline and credit cards.
Maintain Your Budget – Years ago, we taught our clients to allot cash each month in an envelope system, where you would put cash in an envelope for a specific expense. Nowadays, we emphasize that you only spend what has been allotted, and once it’s gone, you stop spending. Try to maintain each monthly allotment without borrowing from other ‘envelopes’.
Track your Expenses – Tracking expenses is a key aspect of maintaining the budget that you have created. If you do not track your expenses, there is no way of knowing whether you are staying within the budget you have established.
The most basic tracking method involves writing down all of your expenses in a notebook every day.
Another tracking technique involves saving receipts for purchases and documenting that information in a notebook or on your computer.
Ask for Help – GreenPath offers free debt counseling and coaching sessions, in-person or over the phone, with no obligation
We work with hundreds of thousands of people each year in helping them build a budget and action plan to prepare for the future. We provide impartial advice from an experienced, degreed professional.
For more information, or to schedule a free counseling session, call (800) 747-2898 or log on to www.greenpath.org.