If you’ve just joined the ranks of the unemployed, you might be wondering how you are going to survive without your usual income while you are looking for a new job.
Here are 13 personal finance tips that will help you to manage your finances and keep your head above water until you can return to the workforce:
- Find out about Severance
- Apply for Unemployment Benefits
- Stay Insured
- Track your Spending
- Prioritize your Bills
- Cut Unnecessary Spending
- Try Not to use Credit Cards
- Leave your Retirement Funds alone
- Be Careful about using your Home Equity
- Raise Cash
- Take a Temporary Job, or Freelance
- Consider Volunteering
- Identify sources of Emergency Aid
1. Find out about Severance
Ask your former manager or HR department whether you are eligible for severance pay. You might also want to find out what the rules are in your state, to make sure you actually get what you are entitled to. Don’t forget that you could be owed accrued vacation, overtime, sick pay, pension benefits or unemployment insurance as well. Some firms provide job search assistance to laid-off workers – you should ask about that too.
2. Apply for Unemployment Benefits
Do this as early as possible as there is always a waiting period before you start getting your checks. Receiving unemployment will not affect your credit, nor should you be worried that it’s ‘welfare’. It’s not – your employer paid into the system for you while you were working, so you’re entitled to use it. You can normally claim for up to 26 weeks, and often longer when the economy is bad. With the average unemployment check at $270, it probably won’t replace your previous income, though. Your state’s employment office can tell you how to apply and how much you’re likely to get.
3. Stay Insured
You can usually buy continued health coverage under your former employer’s plan, although this can be expensive. You don’t need to do this right away, though, as you have 60 days to decide whether to take up so-called COBRA coverage. However, a high-deductible individual policy might suit your budget better while you’re out of work.
4. Track your Spending
When money is tighter than usual, you need to know what’s happening to every penny. Keep a record of everything you spend, either with a notebook and pen, or using a simple spreadsheet, personal finance software like Quicken or Money, or an online site such as Quicken Online, Mint, or Geezeo.
5. Prioritize your Bills
Once you know where your money is going, you can decide which bills and other regular outgoings are essential, and which you can cut out or hold off on paying. List all your expenditures in order of importance. At the top of the list should be your rent or mortgage payment, essential utilities like electricity and water, and transportation you need to get to job interviews (car payment and insurance, or public transit). Near the bottom you should have unsecured debts like student loans, credit cards and other personal debt you use to pay for things that can’t be repossessed.
Your list should remind you what your priorities really are, if things get so bad that you need to choose which bills to pay. If you don’t pay your credit card bill, your credit score will suffer and you might have to deal with some phone calls from the issuer, but not paying your mortgage or rent could mean losing your home.
In the event that you can’t pay an essential bill like the electricity or the mortgage, get in touch with your power company or lender before it falls due. Utility providers often have low-cost services for those with low incomes. You might also qualify for temporarily reduced payments on your mortgage or other loans, but it is important that you notify the lender of your situation rather than simply default on your payments. In many cases, you can defer your student loan repayments while you’re unemployed too.
6. Cut Unnecessary Spending
When you have a lot less money coming in, you have to adjust your spending habits as well. You simply can’t spend money on anything that is not strictly necessary, especially as you don’t know how long you will have to live without a real income.
There are many ways you can trim your spending, for example: invite friends to your house or to a picnic in the park instead of meeting them in a restaurant or bar; stop buying clothes other than those you need for job interviews; use Skype for long-distance calls; get several errands done in one car trip to save gas money; buy generic groceries instead of branded; adjust the thermostat on your heating/cooling system; clean your car yourself rather than go to the car wash.
7. Try Not to use Credit Cards
Charging purchases to your credit cards gets expensive if you have an outstanding balance. Try to avoid putting any more items on your cards for the moment. You should also attempt to lower the cost of paying off what you owe by negotiating a lower interest rate with your card issuer, or shopping around for a card offering a better rate for balance transfers. Here are some great tips on how to stop using your credit card.
8. Leave your Retirement Funds alone
Don’t be tempted to ransack your 401(k) or IRA to get through this rough patch. You will be stung for taxes and penalties now, plus you will lose the tax-deferred returns you could have made. If you have 30 years to retirement, and assuming 8% annual growth, taking out $10,000 now means $109,000 less when you retire. Retirement funds are protected in bankruptcy court, so they should never be used to pay your credit card debt, which is wiped clean if you go bankrupt.
9. Be Careful about using your Home Equity
When you have a job, a home equity line of credit can be a useful fallback, as long as you use it for real emergencies only. If your financial situation is uncertain – for example when you’re unemployed – you must avoid using home equity to pay unsecured debts since home equity is also protected in bankruptcy court.
10. Raise Cash
Now that you have plenty of free time, use it to clean up your house and hold a garage sale or sell your old stuff on Craigslist or eBay. Maybe you have a room you can rent out. Think about your skills and how you can use them to do casual work like dog walking, house sitting, yard work, home maintenance, tutoring, editing etc., to bring in a bit of money until you find permanent work.
11. Take a Temporary Job, or Freelance
If it’s taking some time to find a job, consider applying for a temporary position, even if it seems like a step down from your usual job. Depending on your profession, there might also be opportunities for freelance work. Keep your options open, and you will have a greater chance of finding gainful employment – and you might even enjoy it!
12. Consider Volunteering
Why on earth would you want to work for nothing when you don’t have an income? Because it can give you a sense of purpose and routine, and show you that there are people whose situation is worse than yours. Don’t forget that it can also be good for contacts, and might even lead to a job somewhere.
13. Identify sources of Emergency Aid
If you’re out of work for a long time, you should find out how to qualify for food stamps or other government aid. Contact the food banks in your area and ask if you can join. Your church might have emergency funds for people experiencing financial hardship, and your family and friends might be able to help too.
