Even though the US economy has improved in recent times and unemployment has now fallen to around 5% after a high of double figures in the midst of the recession there is still the prospect of your losing your job. You must be prepared because if you suddenly have no income coming in you are in real trouble. It can happen as companies downsize or streamline in the face of competition.
Some businesses simply find themselves unable to trade profitably. While unemployment statistics currently suggest that if you lose your job there will be other opportunities out there you should still be prepared in case there is an interruption in your monthly paycheck.
It is the strong argument for getting your finances right from the very start:
An emergency fund. You should try to build up a minimum of three months living expenses, ideally six months, and have it set aside in case of the unexpected. That may be anything from medical problems, house repairs and of course redundancy.
A budget. List all your income and expenditure, every detail including daily pocket change and aim to save a percentage each month for positive use. You might be surprising by how much your small daily spending adds up to in a month. If for example you can cut out the coffee shop each day and make your own coffee and sandwich you will save more dollars than you think over a month.
Retirement Savings. Your employer will contribute up to a certain level and that is effectively extra ‘free money.’ You should resolve to start saving even a small amount every month at the earliest possible opportunity. The power of compound interest is often underestimated. Add the factor of as much time as possible and you will have a significant fund if you save regularly.
Do not borrow from your 401(k) or other retirement provisions because although the interest rate you will pay during repayment will be beneficial, you will be losing growth all the time. In addition, if you become redundant, you will only have 90 days to repay your loan or face penalties and tax.
It is worth knowing the benefits you get from your employer and whether they will still apply for a period after you leave. Health insurance is a case in point and you may have the right to continue payments yourself at what will be a preferential rate, from the one you can get individually. You may even have a period after losing your job when you can actually take direct advantage of some benefits; medical or dental checks are an obvious case in point.
Don’t take expensive credit. A card balance comes under this heading and if you have got a balance you cannot clear, perhaps you should consider a personal loan at a cheaper rate of interest to pay it off? Even if your credit score is not particularly strong today’s internet loan companies are likely to approve a realistic application.
Losing your Job
If you receive notice of termination then you have to take control of your situation as far as you can:
- You must begin to limit your spending immediately and don’t take out any additional credit that does not make a positive contribution to your finances such as that cheaper personal loan if applicable.
- You need to assess what you face over the next month or so. What have you got in available cash and what are your immediate bills?
- Is there any help available from Local, State or National Services?
- Find out whether you qualify for unemployment insurance and what impact that would have on your other payments.
- Flexible spending accounts (FSAs) may be of help. The IRS will allow you to withdraw your contributions.
- Get financial advice at the first opportunity.
The real point is that too few Americans follow a sensible budget. So many were swept up into the easy credit environment that existed before the recession struck. Hindsight is a wonderful thing and not worth dwelling on because blame could have been put at many doors in the USA. Just make sure there will not be bad news at your front door.
Readers, how do your finances stand against unforeseen events such as job loss, extensive medical or liability payments?