Good things happen over time; however, bad things happen immediately. This is the way life is. Your graduation, wedding, and first child are things that you dream and imagine for years. However, catastrophic events in your life come out of nowhere. Getting laid off from your job is one of those life events that occur immediately. You may have worked for the company all your life and imagined that you would retire from this job. Feelings of self-worth are closely tied to your job. A job can identify who you are. It means that you are breaking away from the past and facing an uncertain future. Not only do you have all the emotional feelings of losing your job but also the financial challenges that you and your family will face. This paper discusses how to survive financially when you are unemployed. It will look at developing a plan, developing a survival budget, and options when you cannot meet your financial obligations.
Developing a Plan
When you lose your job, you may have to put yourself on a financial diet. It is difficult to know how long you will be unemployed. Depending on your job skills, it may take a few weeks to months to find a job. During this time you need to have a plan on how to keep paying your bills.
When you have come up with a financial plan that will get you through, you must have the discipline to stick to it. You will be tempted to cheat from time to time. However, it is imperative that you stick to your plan as closely as possible. You want to make a plan that is flexible and can be changed when your circumstances change. But, you must have the discipline to stick as closely as possible to the financial plan you have created.
Adjust your expectations
Finding a job in this financial environment is not going to be easy. Even if you have a profession that is in high demand, it could take weeks. Your job search plan may look like this (Forefield Advisor (2009): Week One. Send out ten resumes and wait for a phone call. Week Two. Send out ten more resumes and wait some more. Week Three. Send out five resumes for jobs you want and five resumes for jobs that you really don’t want. The phone rings but not for a job interview. Week Four. The phone finally rings twice and you have two job interviews. You still should send out three more resumes. Week Five. You have two more interviews and send out five more resumes. You get a call for a second interview for one of the jobs. Week Six. You are hired! Bad news: You can’t start for three weeks. As you can see, it can take a few months even if you have developed a successful job searching plan. This is why it is important to develop your financial plan as soon as possible after losing your job.
If you are only out of work a short time, your lifestyle may not have to change drastically. However, if you are unemployed for months, you may have to take drastic measures to survive. Some of the measures might be selling your house, a second car, or take a temporary job. You need to prepare yourself mentally for this.
Preparing a Survival Budget
It is important to remember that losing your job is temporary. The budget you are creating is not going to last forever. When you get a new job, the survival budget can be changed to a more realistic long term lifestyle. Therefore, you need to be careful and make decisions that are not shortsighted. You need to do what you can to survive, but only do what you really have. Do not make decisions out of fear and then regret them later when you get a new job and things are easier.
Start a budget by listing all of your post-employment income and necessary expenses. A survival budget is a bare-bones version of a regular budget. You will want to end up with is an idea of how much income you will need to survive. Eliminate all luxuries expenses and things that you can do without (i.e. movies, eating out, trips, etc.).
Ways to increase your income
One of the first places you should look for income is through unemployment benefits. You will have to meet certain eligibility requirements. You must be involuntarily unemployed, which means that if you quit your job you have no chance of receiving unemployment. However, if you have been laid off or fired (without cause) then you may be able to draw some unemployment benefits. The amount and duration of your check will vary from state to state (Forefield Advisor 2009).
Are you eligible for any severance pay if you were laid off? The amount of the severance will be determined by company policy. You may have the option of receiving a lump-sum payment or a continuation of salary for a set period of time.
If you have planned ahead, you may have an emergency fund set aside with three to six months of your net salary which can help pay your living expenses. Many people are amazed at how fast savings can be depleted; however, it is a great source to help pay for your daily expenses.
You may have credit insurance that will make your bill payments when you are unemployed. This can help with your car and mortgage. If you have any doubt, check with your creditors to see if you have it. However, keep in mind that it may take time to fill out the paperwork and get this benefit started.
If you have been out of work for a longer period of time, you have to resort to taking a part-time or temporary job to supplement your income. This may benefit you in two ways. First, it will ease some of the stress of trying to make your monthly financial obligations. Second, your temporary or part-time job may become permanent. Also, you may be getting additional experience that will help you in your job search.
You may want to have a yard sale. If you look around your house, you will be surprise at how much you own that you really don’t need. Make a list of things that you want to sell and list them in order of priority. If you are really desperate, you may want to price things accordingly. However, there may be items that you only want to sell if you get a good price. You may want to use a consignment shop for certain items such as clothing.
If things really become critical, you may want to consider selling your home. It could be a good idea of because you can raise a lot of cash in this way and reduce your monthly payments. It isn’t a good short-term solution to raising money because it takes time to sell a house. Any decisions you make should be carefully thought out. You need to consider the true cost of your decision and how much you can actually get out of the deal (Forefield Advisor 2009).
As the very last resort, you can withdraw money from your retirement accounts. This step should be considered only if you are facing bankruptcy. Any money that you withdraw from a tax-deferred retirement will be taxed as ordinary income for the year you take the withdrawal. In addition, you may have to pay a 10% penalty for early withdrawal if you are under the age of 59 1/2. Also, you will lose the advantage of compound interest on the money you withdraw. If you do not replenish the money in your retirement account, you may not be able to retire at the age when you planned to.
Reducing your expenses
You may be able reduce your monthly automobile insurance payment by increasing your deductible. However, if you have an accident, you will have to pay the higher deductible out of your pocket. You should try to keep the amount of the deductible in your savings account. If you cannot put aside this money, you should balance the risk with the benefits of this action.
If you have more than one vehicle, you may want to consider selling one. When you take into account, the monthly payment, gasoline, insurance, and maintenance, you could drastically cut your monthly expenses. If you owe more on the car than it is worth, this option will not work because you will still have to get a loan to make up the difference. Make this decision carefully. Weigh the benefits and risks carefully.
If you are out of work for a long time, consider negotiating with your creditors. If you have good credit, you may find it relatively easy to reduce the interest rates on your credit cards, skip a payment or two on your car loan, or reduce monthly payments temporarily. Remember, you will be in a better negotiating position if you call your creditors before you get behind in your payments. If the creditors are calling you, they may not be as inclined to work with you if you call them and explain your situation. Creditors may or may not work with you; however, it is worth a try. If you need help negotiating with your creditors, you may want to talk with a nonprofit credit counseling organization.
You may be paying for things that you can do without. Consider canceling magazine subscriptions, extra phone services, credit cards you don’t use that have an annual fee, health club membership, auto club memberships, cable television, and internet service.
Now that you have drafted a bare-bones budget, post it somewhere where you can use it on a daily basis. It is important that you chart your progress so you can keep on track with expenses.
Options When You Cannot Meet Your Financial Obligations
If you are unable to make your monthly expenses, you have options. However, it is important that you act immediately. Delaying action can make things worse. You could damage your credit history or lose your home.
How You Can Help Yourself
As we have discussed earlier, one way to ease your financial distress is to increase your income. Both you and your spouse should consider increasing your hours or taking a second job.
If you cannot meet your financial obligations, you must cut out every nonessential expenses such as eating out and entertainment expenses. Look for ways to save at the grocery store by buying food on sale and clipping coupons.
You may also consider consolidating debts. This is a great way to catch up on overdue accounts and start fresh with a single creditor. If may can extend the repayment period and lower the monthly payment.
Chapter 7 Bankruptcy
If you income is less than a certain amount, you may be able to file bankruptcy under Chapter 7. When filing Chapter 7, you can keep exempt assets, but non-exempt property is sold and the proceeds are distributed to pay creditors. The remaining debts are discharged. This gives you a chance to start over fresh. To find out if you qualify, contact a bankruptcy attorney in the city where you live. Keep in mind that a bankruptcy stays on your credit for a number of years and will have an impact on you be able to borrow money and the interest rate that you will be charged.
When Spending is an addiction
Some people’s problem with money comes from a compulsive addiction behavior. They have a controllable urge to spend money. Compulsive debtors can seek help through Debt Anonymous, which is a twelve step problem modeled after Alcoholics Anonymous. If you have a problem spending money and are ready to admit that you are powerless over your problems, you may want to attend an open meeting and learn more about it (Forefield 2009).
Because of these economic times, many people are dealing with the trauma of unemployment. Although this experience can be painful, knowing what to expect and using proactive behavior can make unemployment easier. Having a plan, making a survival budget, and planning for the what ifs of running out of money can help you survive. However, planning for the unexpected before it happens, it the best way of handling any financial pitfalls that come along. Developing a financial plan where you are saving for emergencies and setting financial goals is the best way of getting through any financial pitfalls.