Dr. Phil's Recession Survival Squad: Robert Pagliarini

Build an Emergency Fund

"John and Rebecca are in serious financial trouble right now. They are about three months away from being homeless. They have no income, and they have no plan. That's their biggest problem right now," says financial planner Robert Pagliarini.

Robert drops in on John and Rebecca to assess their financial situation. He tells them, "Here's the situation: You have no money. You can't pay your bills, and in a couple of months, there's not going to be a home to come home to. So what we need to do is start eliminating some of these expenses, because in the next three months, you're really in survival mode. We want to cut out as much as we possible can."

Robert recommends they prioritize their expenses. They have to have money to buy food, to pay their cell phone bill, to pay for insurance and gas for the car. He recommends they modify their mortgage or let go of their home, cut out eating at restaurants, stop shopping for clothes and shoes and cancel the home phone line and cable. Robert also recommends they take their kids out of private school, which costs them $800 a month, and put them in public school. "You can't afford it," he says.

This advice brings Rebecca to tears. "I just didn't want to pull them out before the end of the year," she says.

"What's more important: They go to the end of the year, or you stay together as a family?" Robert asks.

"It's going to be so hard," John says. "I asked them, do you mind if we move and keep you in the school, or do we stay here, and you leave the school? And they want the school."

"It's not even that it's a private school, they're just so happy there," Rebecca says. "And with just so much going on in the house, I just feel like I just wanted to get them through the end of the year so they can have something stable."

"You are going to run out of money very, very soon," Robert says. "You won't be able to make the payment to the school, and you won't be able to buy food. That's the situation that you're in. You have to take them out. You can't write another check. The money is just not there."

[AD]Dr. Phil addresses the issue of keeping their kids in private school at the cost of $800 a month. "Now, the vast majority " I don't know what the stat is " probably 99 percent of the kids go to public school, which you've already paid for," he points out. "I went to public schools my whole life. My wife went to public schools her whole life. You pay for that with your taxes. So you're paying for school twice when you don't have the money to pay for your mortgage once. But that's the harsh reality."

Rebecca stands firm and says she doesn't think she's going to pull her kids from private school.

Robert says in this recession, everyone needs to have cash on hand. Here are his five tips for building an emergency account as quickly as possible:

Number one: Do not pay off credit cards. "You need as much cash on hand as possible. If you get laid off, you need to tap into that to pay the bills, to put food on the table. So, just pay the minimums on your credit cards bills, no more. Take the cash that you would have spent and put it in a savings account," he says.

"Save it for an emergency. If you get to a point where you've got to have groceries today or your kids go to bed hungry, you want to have some cash in your pocket," Dr. Phil tells John and Rebecca.

Robert's tip number two: Do not save for college. "It goes along with what you're doing with putting your kids in private school. You just can't afford it. Once we can get out of this financial mess, once you get an income, then you can start saving again. But the goal, what we're really trying to do is to have 12 months of living expenses in cash in a safe bank account," Robert says.

Robert's third tip is don't contribute to your 401(k). "It's not about saving for the future; it's about saving for right now," he says. "That money you put in your 401(k), you might not be able to access it. I want to make sure, again, you have 12 months of living expenses in cash in your pocket, in case you need it."

Tip number four is cut expenses with P-E-R-K: Postpone, Eliminate, Reduce and Keep. Robert explains, "What you do is you list all of your expenses. Next to each one you put a P, an E, an R or a K. So, those expenses you can postpone " maybe buying a new car, taking a vacation " put a P next to it. For those expenses that you can completely eliminate " we like those " put an E next to it. For those expenses that you can reduce " maybe you go out to eat three or four nights a week, if you can cut that back to once or twice, that would be a reduce. For other expenses like health insurance, mortgage, where you have to keep them, you put a K next to it."

[AD]Tip number five is to get a loan. "Ninety-nine percent of us don't have this emergency fund account to tap into, so what we can do is we can create a faux emergency fund, and that is, if you have equity in your home, you can take a home equity loan," Robert says. "Take that money out and put it into a savings account. Again, if you get laid off, you're going to need access to money, so we're trying to create a faux emergency fund here."