Financial

Taking Stock of Your Finances

            For obvious reasons, your personal finances will be among your biggest concerns while you are unemployed. Your bills keep coming every month, and you still need to feed, clothe, and shelter yourself every day, even though you have little or no regular income. You may even have debts that you figured you would eventually pay off back when you had a job. All of these factors can cause fear and stress to distract you from your main priority of getting back to work.

            Fear is mostly a response to the unknown. Having a clear idea of what you’re up against makes any problem easier to tackle, even if you’re not immediately sure how to do it. That’s why one of the first things you should do after your last day of work is sit down and figure out exactly how much money you have, where it is, what it’s doing, and how and when you can access it if you need to.

Bank Accounts

            This is the first and easiest step in tracking down your money. Check the balances of your checking and savings accounts to see how much liquid cash is at your disposal. If you have an idea of how much you typically spend in a month, keep a little more than that in your checking account and transfer the rest to your savings account. If possible, set up an automatic transfer from your savings when your checking gets low. That way, the money you’re not using will at least be earning a little interest.

Work Benefits

If your employer offered benefits like a 401(k) or profit sharing, contact your HR representative to see what your investment in those programs is. Depending on your balance, you can roll your 401(k) funds into an IRA or take a cash payout. Be aware, however, that up to 30% of your investment will be held for taxes and penalties if you try to withdraw before the age of 59½. Profit sharing plans can produce some unexpected windfalls even after you cease contributing to them. For example, I received a letter from my previous employer asking what to do with nearly $2,000 in profit sharing funds more than 18 months after I left. Also, don’t forget about your last paycheck and any severance package that you might be entitled to.

Investments

            Keeping a close eye on your IRA’s performance is a good idea even when you have a job. But when you lose your job, it helps to know how much you have invested in case you need a last ditch way to pay the bills. There are also a few circumstances facing the unemployed where you can avoid the 10% early withdrawal penalty. Critically, you can withdraw money from your IRA to pay medical insurance premiums, and non-reimbursed medical expenses without a penalty. If you decide to use your period of unemployment as an opportunity to go back to school, those expenses can also be covered with IRA funds without incurring a penalty (though you may still need to pay income taxes on them).

You might consider trading in your riskier stocks for safer blue chips, or just cashing out of the stock market altogether. If you have other investments like CDs or Bonds, keep a schedule of when they come due, so you know when and what size your potential cash infusions will be.

You should consider tapping into investments a last resort way to pay the rent or buy groceries. Penalties can destroy years of growth in a single transaction, and if you manage to find a job next week, your future self will thank you letting your investments ride.

Unemployment Benefits

            Filing for unemployment benefits should be one of the first things you do after your last day of work. Most states have a benefits calculator on their websites to give you an idea of how much you are eligible for. Just be sure to bump that number down a little to allow for income taxes. Although the weekly check will amount to a fraction of what you are used to making, it will help ease the burden on your savings and other sources of cash. Besides, even that little bit of money coming in can be a huge psychological pressure release.

They used to say on G.I. Joe that knowing is half the battle, and they were right. The more you know about your financial situation, the more informed decisions you can make regarding your spending, saving, and employment options.


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Financial