It’s always a good idea to be prepared for emergencies—and the loss of a job is at the top of the financial emergency list. Here's a three-step strategy that can help your family get into shape to weather hard times.
1. Reduce your expenses
Track your spending for the next eight weeks: Keep a record of what you bought, how much it cost and the date. Divide your core expenses into broad categories: housing, food, transportation, utilities, insurance and loan payments. List your discretionary spending separately: eating out, going to the movies, gifts, etc. If you use Quicken, your expenses will be automatically categorized and your spending will be tracked for you.
Once you’ve organized your expenses, look for ways to reduce costs in each category. For example:
- Cut your heating bill by lowering the temperature of your house by a few degrees at night, and also during the day when nobody's home.
- Carpool to work.
- Get rid of your landline or sign up for a deal to bundle your telephone, cable television and internet access.
- Shrink your auto insurance premiums by boosting your deductibles. Or comparison shop for a cheaper policy at www.insweb.com or www.insurance.com.
- Find less expensive life insurance. If you're in good health, chances are you can replace an old policy at substantial savings. (Get a quote online at www.term4sale.com.)
- Don’t run out to see that new movie in the theater; wait until it’s released on DVD.
Quicken can help you set budgeting goals and track your progress against them, so you always know where you stand.
2. Use your savings wisely
Cutting your expenses will free up the money you'll need to build a safety cushion in case your job anxiety turns out to be well-founded. For example:
- If you don't have an emergency fund, set one up by making monthly deposits to a savings or money market account. If you already have an emergency fund, keep adding to it. It should be big enough to cover three to six months of living expenses.
- Boost your credit card payments if you have outstanding debt. Your monthly bills won't stop even if your salary does, so the lighter the load the better.
- Don't be afraid to spend money to acquire a new skill or master a new technology that will help you qualify for a new job. Taking a class online or at a local community college can be a cost-effective way to enhance your ability to find work.
3. Collect the information you'll need
- Find out now what your rights and options would be regarding severance pay, unemployment insurance and health insurance benefits.
- Employers aren't legally required to pay severance, but many do. Check your employee handbook or ask your human resources department about your company's policy. The average severance typically ranges from two weeks to six months’ pay, depending on how long you've been with the company.
- If your company has a health plan and employs more than 20 people, a federal law known as COBRA gives you the option of staying in that plan for up to 15 months after losing your job, but you'll have to pay 35 percent of the premium amount to your former employer. To qualify, you must have lost your job between September 1, 2008 and February 28, 2010, and meet IRS income eligibility requirements. If you're eligible, it may be cheaper to join your spouse's plan so be sure to check that out. Also, research the cost of group coverage that may be available to members of a professional association or group you belong to or could join.
- Check your state's unemployment insurance rules. The size and duration of unemployment benefits depends on state law and your former salary. Go to the Department of Labor website for links to all state unemployment agencies.
Making these changes and contingency plans will help streamline your budget, protect your assets and give you a greater sense of control over your financial situation—a good idea anytime, but particularly important if you lose your job.