How to Budget for Long-Term Unemployment | Family Finance
For millions of out-of-work Americans struggling to find job opportunities during the monthslong coronavirus pandemic, navigating unemployment is a long-term struggle.
Among unemployed people, 58% were jobless for 15 weeks or more, according to seasonally adjusted September data from the U.S. Bureau of Labor Statistics, and 19% were without employment for 27 weeks or more.
That’s a dispiriting situation to endure, and it can quickly become financially unsustainable as savings accounts are depleted, bills pile up and benefits expire.
So what can long-term unemployed Americans do to build a budget for ongoing joblessness? Here are the accounts you can tap, bills you can deprioritize and strategies you can use to survive long-term unemployment.
Take Inventory of Your Expenses
Your first step is to understand your expenses, so you can calculate how long your money will last.
Gather your credit card bills, bank account statements, budgeting app records and other resources that will help you gain an understanding of fixed and variable monthly costs.
Start Cutting Expenses
Slash subscriptions, luxuries and discretionary purchasing. “Everything should be on the table in terms of cutting expenses,” says Shashin Shah, a certified financial planner and managing director at SFMG Wealth Advisors in Plano, Texas.
Be brutal, yes, but also be kind to yourself. If a video-streaming service like Netflix is the only way you’re getting entertainment in quarantine, consider keeping it, says Marguerita M. Cheng, certified financial planner and founder of Blue Ocean Global Wealth in Gaithersburg, Maryland.
But anything that’s not useful during this time should be cut or renegotiated with service providers. Prioritize needs such as food, shelter and medications.
One strategy to consider: refinancing your mortgage, especially if you have a spouse who is still working and you can get a good interest rate. It can stretch out and reduce payments, giving you more room in your budget to pay for necessities, Shah says.
Even your retirement savings can be on the chopping block. “If you do have to reduce, or even stop, your savings temporarily, just to manage, that’s OK,” Cheng says. “That’s why you have a financial plan.”
Take Advantage of Mandatory and Voluntary Payment Relief Programs
Many companies and lenders are offering payment relief to Americans impacted by the coronavirus pandemic. Some of them are doing so because they’re required to by state or federal legislation. Others are choosing to offer relief programs, knowing that this is a tough time for many folks.
It doesn’t hurt to call them up and ask what options are available for suspending or reducing payments. “Most of the companies will be expecting these calls,” Shah says.
Dial up your mortgage company, landlord, credit card issuer, student loan servicer, utility companies, service providers, car insurer and anybody else to whom you pay monthly bills. They may be required or willing to work with you to reduce your monthly payments.
Take note, however, of what happens when the relief program stops. Are your deferred bills due all at once? Make sure you understand the terms of any COVID relief plans.
Consider Federal, State and Community Benefits
Now is the time to start your application for unemployment insurance. If you’ve hit roadblocks during the application process, don’t give up, Cheng says. Be aware that unemployment benefits can be paid retroactively, so stick with it through dropped calls or long wait times.
Additionally, look into the Supplemental Nutrition Assistance Program, also called food stamps. Determine whether your state or community has additional relief programs such as food banks, housing assistance, job placement services and other resources.
Now is not the time to be prideful. If there’s a public benefit available to you, take it.
Take Stock of Health Insurance Options
If you had health insurance at work, the federal law requiring employers to continue health coverage for up to 18 months, called COBRA, may be an option. However, it can be expensive. You may also be able to sign up for coverage on your state’s insurance marketplace or via Medicaid, which provides health coverage for low-income Americans.
Revisit Cash Flow
Now that expenses have been cut and relief programs have been accessed, it’s time to figure out where you’re going to get money.
If you’re lucky, you may have a spouse or partner who has continued to be employed. Determine how far his or her salary can take you.
This is also the time to take inventory of any savings accounts and investment accounts. It’s also a moment to consider what kinds of side hustles or gig work you’d be willing to perform.
The coronavirus pandemic may complicate things if you’re not comfortable interacting with people face-to-face. If that’s the case, research options available for online work. “You might not be able to drive for Uber, but there might be other things you can do,” Cheng says.
Do Some Math
Divide your available cash by the expenses you will accrue each month. That will yield how many months you can afford to finance your current situation.
Is that timeline looking a little short? Continue tweaking your expenses and considering methods of boosting cash flow to lengthen your ability to finance your life though long-term unemployment.
Tap Savings Accounts in the Right Order
Ideally you’d have six months’ worth of savings in an emergency fund to use in exactly this type of situation. But whatever you have in liquid cash, you’ll want to tap first.
Next look to taxable investment accounts that contain assets you can sell, says Roger Ma, certified financial planner at lifelaidout and author of “Work Your Money, Not Your Life.”
After that, you may want to consider your 401(k) and other retirement accounts. As part of the coronavirus relief bill, folks impacted by the pandemic can withdraw up to $100,000 for coronavirus expenses without being charged a 10% penalty. Income tax will be due on the amount, but both the balance and tax may be repaid over three years.
Of course, taking from your retirement accounts isn’t ideal. It could defund your retirement and cost you in tax benefits and long-term growth. But if you need that cash to avoid high-interest debt or eviction, consider it.
Additionally, you can ask family members for financial assistance if they are able and willing to help.
Sell Your Stuff
Take inventory of your belongings. Now may be a good time to sell old clothing or gently used furniture online or at a secondhand store.
Stage a virtual garage sale or build an online marketplace and see what you can sell to boost your available cash.
Take on a Side Hustle … With a Caveat
Consider gig work through an app or on your own. If you’re uncomfortable working face-to-face with others, you may be able to find work tutoring, being a virtual assistant or even consulting in your industry.
“Maybe there is a way for you to generate some income, whether it’s a seasonal job or a consulting role,” Ma says.
Make sure you understand what that impact that income will have on unemployment benefits, Shah says. It may not be worth the time required if it slashes your eligibility.
And don’t forget to keep in touch with your network via phone, LinkedIn or email, so your contacts will keep you top of mind when a relevant job posting arises.
Consider Job Retraining
If the coronavirus pandemic has dealt a death blow to your industry or job role, it may be time to consider other industries and jobs in which you can work.
You may want to hire a career coach (if the cost is manageable) or speak with mentors and former co-workers about industries that could use your job skills. Your former employer may have had career coaching as part of a severance package as well.
Ultimately, facing long-term unemployment is a gloomy prospect. These strategies can help you pay your bills for longer, avoid taking on high-interest debt and set you up to find the next job. Says Ma: “Make a plan, put it into bite-sized pieces and try to keep a schedule.”