URBANA, Ill. – Are you afraid that you might be laid off from your job? You can take steps now that will make it easier for you and your family if that happens.
Karen Chan, University of Illinois Extension consumer and family economics educator, provided ideas on how to evaluate your current financial position and decide how to prepare for a possible layoff.
How long would your money last if you lost your job? Keep track of your expenses, and calculate how much you spend in a month, Chan advised.
Then, add up the money that you have in your checking and savings accounts. If you have savings bonds, CDs, or a money market account, determine how many months these funds would support you.
“The average job search lasts about three months,” Chan said. “If you don’t have enough money on hand to carry you that long, develop a plan of what you would do if you lost your job.
“Taking steps now to reduce your expenses and build up your savings could be the difference between losing your apartment or home, and maintaining your current lifestyle during a period of unemployment.”
Make a list of expenses that you could cut now, or if you lost your job. Identify expenses you could live without, such as premium cable channels, magazine subscriptions, having your nails manicured, take-out and restaurant meals, and housecleaning services.
Ways to make money.
Consider other sources of income you could tap into if your money ran out. Could you generate money by having a yard sale, selling unused clothing at a consignment shop, or selling investments?
Have you loaned money to others who have not yet paid you back? Do you have available credit on a credit card or a home equity loan of credit?
If you have a retirement plan at work, you might be tempted to use that money to survive a layoff. Yet, that should truly be a last resort, Chan said.
If you use money from a 401(k) plan, IRA, or other retirement plan, you will have to pay income tax on all of the retirement money, and a likely 10 percent penalty charge.
“Even if you originally had $5,000 in the account, you might end up with only $2,950,” Chan said. “Tapping into your retirement account is an expensive way to get money.
“In addition, you are using money that was supposed to support you in your retirement years.”
A working spouse may be able to provide additional income for the family. If the spouse is making voluntary contributions to a 401(k) or other retirement savings plan, he or she might temporarily stop these contributions.
Also, your spouse may consider filing a revised W-4 form to have less taken out of their paycheck, thereby increasing their take-home pay.
Can you improve your financial position so that you can better handle a few months with no income? Pay down your credit cards now, so that you won’t have payments when you are unemployed, and you’ll still have the credit line available to you if necessary.
Also, build up your emergency fund. Ideally, you should have funds to cover at least three months of expenses.
“You will also benefit now and in the long run if you learn to live within your means rather than beyond them,” Chan said.