Four Ways To Prepare For Unemployment
Do you have a plan in place for if you become unemployed? Take these four steps to prepare.
Being prepared is one of the most important things you can do if you’re afraid of being laid off.
With more than 30 million Americans filing for unemployment over the last seven weeks and more than 55,000 employees being laid off from start-ups, now is the time to revisit your financial plan to give yourself as much security as possible.
Whether you’ve heard grumblings around the office or whether some coworkers have unfortunately already been laid off, here are four things you can do today to prepare yourself and your family.
Four Ways To Prepare Yourself For Unemployment
1. Prioritize emergency savings.
If you don’t already have 3-6 months’ worth of expenses saved up, now is the time to start. With income still coming in, you can still get a head start on saving for your future recurring expenses and bills.
If you need to, it is okay to even temporarily pause your savings towards longer term goals, like retirement, in order to speed up building your emergency reserves.
Of course, it is better to continue saving for retirement, if possible. But if you must, prioritize your emergency fund over other goals.
2. Revisit your budget.
Take stock of discretionary and necessary spending.
You should have a good understanding of what monthly bills you have to pay and how much you typically spend on items that may not be necessary, like eating out, subscription services, trips, etc.
If you can, take it to the next level and start practicing what cutting back on discretionary spending looks like for you. Think of it as a trial run, just in case you do lose your job. You may even find you’re already spending less organically due to the quarantine.
Take this silver lining and make the transition much easier in the event that you do have a loss of income.
3. Calculate your runway.
Once you determine how much you have in your emergency fund along with your expenses, calculate how long that will last you (weeks, months, etc).
Keep in mind that you may not have just your own savings to depend on.
Here are a few places where you may come across extra income if you get laid off:
- Paid time off or sick days paid out to you that you were unable to use.
- Unemployment benefits that once you file, may provide you with cash flow.
- Income from someone in your household, or a spouse, with whom you normally share expenses.
- Severance from your previous company.
Knowing how long your runway is will help put your mind at ease and help you avoid making rushed decisions.
4. Research your state’s unemployment benefits.
Each state has different rules and regulations for applying and qualifying for unemployment benefits.
For example, many states will seek to replace up to 50% of your income as an average employee. And, each state offers unemployment benefits that last for different periods of time as well.
Thankfully, the CARES Act also expanded funding for unemployment benefits at the federal level in two ways:
- Providing an extra $600 weekly payment, in addition to the weekly benefit amount an eligible employee would receive under state law.
- Increasing the maximum number of weeks an individual may receive benefits.
Get a sense for your state’s benefits in particular so that you know how to apply, how long your savings will last, and what income you can expect to get from applying.
Preparing for the unexpected.
Safeguarding yourself and your family from potential unemployment—especially while you still can—can help provide some comfort during a period of great upheaval.
As we settle into a new reality that might involve social distancing for a couple of months and more market instability, it’s important to focus on what you can control: preparing yourself for unexpected circumstances.
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