Establishing a Budget While on Unemployment
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Being unemployed can undoubtedly cause a household’s budget to tighten, for families especially. Healthcare, paying off credit card balances, saving money for a rainy day: these things are all essential but can easily be pushed aside when the main source of income has diminished or disappeared altogether. However, making informed decisions and establishing a concrete budget can help a household tremendously during times of unemployment.
How to Save Money Right After Losing a Job
If you’ve become unemployed recently, the smartest approach is to begin damage control by limiting spending and making essentials the priority. Assess how much money you have in total and how much money will be owed in the near future so that a plan can be made for spending. Be honest with how long the money you have can sustain costs of living, making sure to account for all monthly payments. Generally, now is not the best time to take out a loan because it may be uncertain when you will be employed again.
Also, take advantage of any Dislocated Worker services that may exist in your company or field as well as union benefits if you belong to a union. Often, these programs include services that can help you get employed again, like resume writing assistance or even immediate job placement.
See if you or anyone in your household is eligible for unemployment insurance in your state. Unemployment insurance is a government funded program that allows temporarily unemployed workers to receive a weekly stipend for a few months. Unemployment insurance also requires the beneficiary to actively seek work and has programs to help. This can become an opportunity to network and find another job.
Avoid Scams and Frauds
It’s understandable to want to make extra money while unemployed. There are many bogus companies that exist only to take advantage of this vulnerability by creating scams disguised as excellent offers. Often, these scams are a ploy to steal money and personal information to hijack a person’s identity. Always be cautious when considering a deal that sounds too good to be true. If the deal was really as lucrative as it promises, why aren’t more people interested in it?
It is safest to always run a background check on investment professionals to check their credentials. Similarly, any online job offer that asks for personal information or money is better off not being trusted. These scams are targeted toward people who will readily give out their information so that they can use it to steal your money. Always consider the legitimacy of any offer that you come across, especially while unemployed.
How to Save Money During Long-Term Unemployment
Sometimes, unemployment can last for months. When this happens, it is imperative that overall spending is decreased and that long-term financial accounts are preserved as much as possible. Professional financial advice is an invaluable resource that can help you create a plan to utilize your money in the most effective and informed way.
Retirement funds should be left untouched unless absolutely necessary. Using funds that are meant for the future can cause you to be in the same tight financial position when the time comes. Also, retirement funds used before the age 59 ½ are subject to income taxes. It is required that 20 percent of all money taken out of a retirement fund is withheld for tax purposes. An additional 10 percent is taken for taxes if the retirement fund is accessed before the account holder turns 59 ½. For these reasons alone, it is important that a retirement fund is only used as a last resort.
Lump sums of money obtained during unemployment should only be spent as needed. There’s no way of knowing how long you will be unemployed, so the best plan is to use lump sums sparingly to make it last for as long as you may need it. If you choose to invest the lump sum instead, research which investments are the safest and most lucrative.
Loss of health insurance is one of the biggest risks associated with unemployment. Many employed people get their health insurance through their job or are making enough money to purchase their own health insurance. Even while unemployed, you still have options to retain health insurance. If a spouse receives health insurance, whether from their job or through the Health Insurance Marketplace, you will likely be eligible to be listed as a dependent on their plan. If this is not an option, the Health Insurance Marketplace may offer a low-cost plan through the Affordable Care Act. Also, if you received health insurance through your job before becoming unemployed, your health insurance benefits may be retained for up to 18 months under federal law (COBRA). You will have 60 days to establish a need for health coverage under COBRA before being denied continued benefits. Through COBRA, the insurance premium will increase two percent for administrative fees, but your former employer is still responsible for their portion.