Unemployment happens to the best of us so it’s important to be prepared…just in case. This Flashback Friday post provides tips to financially survive unemployment.
In this day and age most people have either experienced unemployment or know someone who has. This can be really scary if you’re not prepared for it and don’t know what to do if it happens to you. Here are some tips to help you get through a bout of unemployment.
Savings, savings, savings
This is the most important thing you can do. Plan ahead and start setting aside money into a separate emergency savings account. Ideally, you’d want to have 3-6 months’ worth of your household and living expenses set aside. Most companies don’t get through posting the job, going through resumes, interviewing, and hiring within just a few weeks. Start depositing money into your emergency savings account from each paycheck – whatever is affordable for you. The more you can put in savings, the better off you will be. And if you get a bonus or a tax refund, think about putting a big chunk of that into savings as well. If you don’t have enough time to build up savings, just do what you can…and keep reading.
Prioritize & make temporary sacrifices
Pay your necessities such as mortgage/rent, utilities, groceries, etc. – things that keep you safe and healthy. Then, to avoid using up all of your emergency savings and/or to prevent falling behind on bills, make cutbacks. See if you can temporarily cancel cable or internet. Skip dining out and instead make the most of your groceries. If you have a car payment, credit card, boat payment, student loan, etc. call and see if you can obtain a forbearance (a temporary suspension of payments). Also, call your utility company right away and talk to them about your options – don’t wait until you fall behind on bills to make the phone calls. It’s easier to call when your payments are still current.
Ask your employer for a severance package. Companies aren’t obligated to offer you a severance (unless that was in a written agreement when you started), but they may be willing to give you severance – especially if you have a good employment history with them.
Medical costs are usually pretty expensive and if you find yourself needing medical treatment without insurance, which can lead to debt piling up. Bills can run tens of thousands of dollars if it’s something that requires overnight hospital stays and/or surgery. So make sure that you try to find coverage as soon as possible.
First, if you have a spouse, check into getting put on their plan. If not, see if your company offers COBRA. Check all of your options before making a decision, but don’t wait too long. There are also usually sliding fee scale clinics – especially in metro areas – that may be available to you temporarily until you regain insurance coverage. Visit United Way 211 for local referrals to those sliding fee scale clinics (or other local resources you may need).
Once you get laid off, the sooner you file for unemployment the better so that there isn’t a major delay for you to receive your unemployment checks. You are eligible for unemployment even if you receive a severance package or buyout. Check with your state’s unemployment website for more info and to estimate payments. If you live in MN, click here for more info.
Should I withdraw from my retirement account?
My suggestion is don’t do it. If you withdraw from your retirement accounts before retirement age, there are tax ramifications and there’s a possibility of an early distribution penalty depending on the type of account. Also a big, fat NO is using credit cards. The last thing you need when you’re already short income is to build up credit card debt. If you use cards for necessities without paying the card in full each month, it adds up quickly and you’ll see your debt skyrocket. Not to mention if you have high interest rates and/or are only able to make the minimum payment, it will take even longer to pay off – as in 10, 15, 20 or more years depending on the balance. So consider these both as absolute last resorts and avoid if at all possible. Check out another great post on saving for retirement.
Planning is key to minimizing the effects of an unexpected event such as a layoff. And even if you think you have a stable job, set aside what you can afford now because most people don’t anticipate losing their jobs. If it’s already too late and you don’t have time to save money, follow the above steps to mitigate the negative possible outcomes. If you are diligent, it will be much easier for you to regain financial stability after a crisis.
LSS Financial Counseling can help you create a plan of attack so you’re prepared for a layoff. Want more information on preparing for a layoff? Read ‘How to Financially Prepare for a Layoff.’ Give us a call today at 888.577.2227 to get started. Our Financial Counselors will empower you to build up savings, conquer your debt, and achieve your financial goals.
Author Elaina Johannessen is a Program Director with LSS Financial Counseling.