Unemployment – 4 things you should know

Many people have good reason to be concerned about their job in this economy with unemployment on the rise. A job loss can affect us in many ways: socially, psychologically, and of course financially. 

The financial concerns are usually the greatest concern for most, but with some proper planning you may be able to ride out this current economic storm. Unfortunately, very few people live by the philosophy, “Pray for the Best and Prepare for the Worst” when it comes to their finances.   It is never too late to start preparing and here are 4 tips that you can use in this economic environment.

 

You should always have at least 3 to 6 months of your monthly expenses set aside for emergencies. With the economy like it presently is, you should look to increase that to 9 to 12 months. In our course, we teach you how to re-evaluate your budget (or start a budget) and cut out the waste and non-necessities.

 

Cut out gym memberships that you never use and try working out from home with videos you take out from the library. Shop around some of the things you have been paying for years like auto insurance and cable. There is nearly always a better deal out there.  We give you lots of money saving tips in our course. Click here to read more about it.   

 

3.    Stay calm and don’t panic! People tend to make poor decisions when they are stressed. Start looking into your eligibility for Cobra (which is the extension of Health Insurance from your employer) Consider taking out a home equity line of credit in which you will not qualify for once you are actually un-employed. You would be surprised, how even unprepared people can go a year without a job and keep their head above water.   Try not to worry too much and see if this as an opportunity in disguise.

 

4.    Make withdrawing from 401k’s and IRA’s a last resort place for cash.  Many people are doing this already and making a big tax mistake. If you must do this, 99% of the time you are much better off waiting until after the New Year. Here’s why…Let’s say you are single, and got laid off in October from a job in which you made $50k a year and you immediately access your 401k upon being laid off. You have already earned $38k that year, plus a small severance and some un-employment checks putting you well into the 25% tax bracket. You draw out $20k from your 401k, just to breathe a little better, but pay 25% on the withdrawal plus the 10% penalty.  ($7000 before state taxes)

 

In contrast, if you waited until the end of the year and withdrew the money on Jan 1^st it would be a taxable event in 2009 where you will probably be in the 10% or 15% bracket.   The same transaction two months later would create a tax liability as low as $4000, saving you $3000 in taxes for doing the same thing two months later. This may be more or less effective based on an individual’s situation. Generally, you are always better off deferring tax liabilities when you can! 

 

People get laid off, and these days more than ever before. Good people, talented people are getting laid off every day which is why it’s so important that you are prepared.   Follow these tips and you’ll be much more prepared for the worst case scenario.

I hope my tips make sense to you, and realize that you probably have a lot of questions pertaining to your own financial situation. Having a financial game plan and being prepared for what life gives you is so important. This is why we created online courses to teach people how to plan ahead for such things like getting laid off. The course is only $25 and I’ll be on hand to answer as many questions as you have about all the areas of finance. I invite you to visit our website www.mywealth.com and read more about this course.