Don’t let losing your job run you into bankruptcy or make you blow through your savings. Develop a strategy to help you survive the loss of income. Bear in mind that finding a new job may take quite a while, so developing sensible habits can help maintain your finances until things turn around. We’ve provided six winning strategies to help you stay in the game while unemployed.
The reality of unemployment is that you need to make less money go a lot further. It’s time to be careful with your money and devise some strategic spending and saving plans. Keep your focus on long-term survival and don’t give in to short-term temptations. Consider implementing the tactics below to help you meet your financial challenges.
1. Reduce expenses; stick to a budget
If you become unemployed, immediately cut your expenses. Start tracking your expenses to help you create a budget and find new ways to save. Reduce the spending you can control such as groceries, utilities, your cell phone plan, and gas, and eliminate non-essential expenses such as entertainment, dining out, and new clothing. Coupons are another easy way to save money.
2. Contact your creditors
Now is not the time to sink further into debt and ruin your credit score. Don’t use your savings to pay off debts—you may need the cash for living expenses. If you have loans, such as home, car or student loans, contact your lenders to see if you can qualify for temporarily reduced payments, a longer-term payment reduction plan, or a payment suspension while unemployed. Contact credit card and utility companies to see if they offer payment options. If you can’t fully pay your credit card bills or household bills, make at least the minimum payments. Consult with your insurance agent or broker to see if you can reduce life, home, and auto insurance premiums.
3. New Sources of Income
While you’re doing your job searching, brainstorm on some surefire ways to increase your cash flow. Consider selling items you don’t use or need such as exercise or recreational equipment, furniture, a little-used car, motorcycle, or boat. Other options to consider for bringing in extra cash include renting out a room in your home, getting a part-time job, or doing odd jobs like handyman, dog walking, running errands, tutoring, or cleaning homes.
4. Don’t touch retirement accounts
Avoid making withdrawals from your retirement accounts. If you do, you can lose one-third to one-half of the withdrawal to taxes and penalties. Remember, retirement accounts work for you only if you leave the money invested until retirement.
5. Use home equity with caution
A home equity line of credit can be a welcome source of funding for emergencies, but only if you can afford to repay the loan. Remember that when you take out a home equity loan, your home is your collateral, and if you default on the loan, you could lose your home or you might have to declare bankruptcy, which will damage your credit score. Bankruptcy law is complex, so don’t do anything without consulting an attorney.
6. Keep your health insurance
If you had health insurance through your job, you should be able to purchase continued coverage under COBRA. You usually have 60 days to sign up under COBRA, and the coverage is retroactive, so you don’t have to decide right away. If you get another job quickly, you may not need the coverage. Read “Your 5-minute guide to health insurance” for more details.
The key to surviving unemployment is to develop a solid strategy that involves proper financial planning, budgeting, and conserving your resources. It helps to keep your wits about you and regularly schedule time to work on your resume and job applications. Try to give yourself some downtime too, and find ways to reward yourself for being a smart survivor.