Finance Globe

U.S. financial and economic topics from several finance writers.

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Prepare for Unemployment While You're Still Employed

Few people have guaranteed job security. Even in a stable job market your job is at risk. That’s why it’s important to take steps to prepare for unemployment now, especially while you still have a job. Hopefully, you’ll have never have to deal with an unexpected job loss, but if it happens, you’ll be happy you prepared for it.

Build an Emergency Fund

Traditionally, the ideal emergency fund would cover three to six months of living expenses. In an unstable job market, a larger emergency fund is safer. An emergency fund worth six to twelve months of living expenses will let you live comfortably for a longer period of time, especially if you cut back on your expenses following a job loss. It may sound like a lot but keep in mind that in a tough economy, you can be unemployed for a year or more.

It can take several months, or even years, to build up an emergency fund that size, but you’ll never make it if you don’t get started. Don't be discouraged by slow progress because any emergency fund is better than none at all.

Keep Your Living Expenses Under Control

Often, we increase our living expenses as our income increases. Keeping your living expenses stable, even when your income rises, will make it easier to survive if you or your spouse suffers a job loss.

Be careful about taking on new recurring financial obligations just because you can afford them. Even if you never lose your job, that money could have been used to help build your emergency fund (which can also cover car repairs or medical bills), to fund your retirement savings, or to help your child’s college savings.

Keep Your Resume Updated

Following a job loss, you'll want to start searching as quickly as possible. An already-updated resume will let you get started quicker than if you have to spend weeks tweaking your resume. While you're still employed, update your resume often, especially as you complete projects or take on new responsibilities at work. Don’t forget to include classes or training you’ve received since you’ve been in your current position.

In addition to keeping your resume updated, keep your professional network updated. Join a professional social network like LinkedIn, so you can keep in contact with clients, co-workers, and other industry professionals.

Pay Off Any 401(k) or Other Retirement Loans

You’ll be expected to repay the outstanding balance on a 401(k) loan within 60 days after leaving your job. Otherwise, the loan will be treated as a withdrawal if you can’t afford to repay the funds all at once. That means you’ll face Federal income taxes and a 10% early withdrawal penalty on the unpaid balance. That’s not an expense you want to deal with right after a job loss. Consumers over age 59 ½ may be able to count the unpaid balance as a qualified distribution and avoid the early withdrawal penalty, but they won’t avoid the taxes.

Reduce Your Credit Card Debt

Eliminate your credit card debt and you'll have one less expense you to be concerned with. Even the minimum payments may be unaffordable after a job loss, so it’s best to repay your credit card bills while you’re still gainfully employed.

Get a Money Making Hobby

Having an income stream separate from your primary job will benefit you in several ways. You can use the extra income to build your emergency fund and pay off your debt. And, after a job loss, the extra income keeps you from having to use so much of your emergency fund. Losing your job may even give you the opportunity to turn your hobby into a business – a blessing in disguise if self-employment is a goal of yours.

Losing a job is a very real situation. It can happen suddenly and unexpectedly. Fortunately, you can soften the blow of a job loss if you start while you still have a job.

Source: CNN Money
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Sunday, 12 July 2020

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