Coping With Unemployment- Part 1

There is nothing as financially unsettling as unemployment. Just when a family is used to having a higher income, it is scaled back and spending must be adjusted accordingly. There is also the issue of having to find a new job.

Below are five recommendations to consider:

¨      Reach Out for Help- Take advantage of available benefits and services such as state unemployment assistance, college and university career counseling offices, non-profit agency job training programs, and support groups for unemployed persons. Set aside about 30 percent of unemployment benefits for estimated federal and/or state income tax payments.

 

¨      Save a Surplus- Try to save at least 3 months expenses and reduce household debt and discretionary spending if you sense a PCS or job layoff coming or have time until an announced downsizing takes effect. Learning to live on less income when you still have an income will make it easier to live without it later on.

 

¨      Live on Less- Consider lifestyle adjustments, such as selling a second car or other valuable property and trimming household expenses. There is no “right” way to do this. Some families prefer to trim a number of small expenses (e.g., coffee) while others focus on large recurring ones (e.g., cable bill and mortgage).

 

¨      Build a Back-Up Fund- Apply for a home equity line of credit (HELOC) while both spouses are still employed, to have in case you need it. The cost to apply should be nominal and there is no cost unless funds are actually borrowed. In addition, the interest rate will be lower than most credit cards.

 

¨      Take Care of Your Health- Set up health care appointments while coverage is still available, if a soon-to-be unemployed spouse’s job provides benefits such as medical and dental coverage.

 

Handling Financial Windfalls

The Financial Planning Association (FPA) and Association for Financial Counseling and Planning Education (AFCPE) recently held a webinar called What to Do When Your Ship Comes In. Below are five key take-aways:

¨      Windfalls can be defined as any unexpected receipt of money that is larger than what someone is accustomed to dealing with. By this definition, windfalls are fairly common. Windfalls of varying dollar amounts can be viewed differently depending on a recipient’s income and assets.

 

¨      There are many sources of windfalls including tax refunds, insurance and legal settlements, divorce settlements, inheritances, the lottery, stock options, proceeds from the sale of property, and more.

 

¨      Windfalls can provide a sustainable source of long-term wealth if handled properly. Unfortunately, many people lack financial knowledge and experience to handle them properly.

 

¨      Many people who receive windfalls experience a range of emotions including euphoria (which can lead to overspending), depression (feelings of unworthiness or guilt), anger (e.g., rage from being injured in an accident), grief (e.g., mourning the death of a loved one), and distrust (e.g., wondering if people want you for your money). These emotions can lead to poor money decisions.

 

¨      Windfall recipients need time to accept their “new reality.” They also need to develop long-term plans for the use of their windfall that are consistent with their values. It is okay to “park” money in a cash asset (e.g., money market fund) until long-term plans are fully fleshed out.

Career Planning Strategies- Part 2

 There are many factors to consider when thinking about a new job including a change in salary and a change in living costs, if moving to a new geographic location. Below are three career transition recommendations to consider:

¨      Do Salary Due Diligence- Check Web sites such as www.salary.com and www.jobsmart.org for information about the earnings potential of various job titles. For non-profit managerial positions, check the non-profit organization’s 990 form at www.guidestar.com for the salaries of previous employees.

 

 

¨      Roll Over Retirement Savings- Keep your tax-deferred account balance tax -deferred with one of three options: former employer’s plan, transfer to a new employer’s plan (if allowed), or a rollover IRA, which provides the most investment choice and control. When unsure about how to invest the money, consider placing it temporarily in a money market fund until you can explore your options.

 

¨      Consider Relocation- Weigh the pros and cons. Being willing to relocate can enhance prospects for employment because you are “casting a wider net.” It is not without its trade-offs, however, including differences in living costs and family resistance, especially if a “trailing spouse” has to find a new job or school-age children don’t want to leave friends and activities. There are also intangible financial costs to consider. For example, if you are moving away from family members who provide unpaid support services (e.g., child care), there will be a financial loss when these services must be purchased in a new location.

 

 

Career Planning Strategies- Part 1

The type of job that someone has is strongly related to their personal finances. A job determines income, fringe benefits such as health insurance, retirement savings opportunities, and where people choose to live. Generally, the highest-paying and fastest-growing jobs require advanced education, technical training, or skills that are in great demand.

Continuous inservice training is a necessity in many fields. Many younger workers will change careers four or five times during their lifetime and hold a dozen or more different jobs. As their employment situation changes, workers face a variety of decisions related to career transitions, income, benefits, and relocation. Financial implications also need to be carefully considered. For example, a raise in pay may not amount to much if someone has to move to a high-cost area.

Below are three career transition recommendations to consider:

• Prepare Yourself for Career Advancement- Stay current in your field with trade journals, professional meetings, certification courses, college degrees, and the like. Develop a reputation as a leader and a doer and cultivate mentors who can provide advice, feedback, and role modeling. Think of yourself as a self-employed contractor who must constantly demonstrate value to each new employer.
   
• Assess Your Employability- Start a file to document job performance successes (e.g., promotions, awards, publications, and successful projects). Make a list of experiences, transferable skills, strengths, and weaknesses. Seek opportunities to learn new skills, take risks, join visible project teams, and fill in job experience gaps. Prepare a one-page resume that emphasizes your skill set.
   
• Look Before You Leap- Calculate the impact of a new job on personal finances. Items to consider include: changes in commuting costs and time, flextime and telecommuting policies, fringe benefits offered by a current and new employer, retirement savings plans and employer matching, pension vesting requirements, and opportunities for future advancement. Many career development specialists advise against changing jobs without a pay raise of 30% or more, especially if it involves relocation.
   

Protect Your Assets with Insurance- Part 2

Comprehensive insurance coverage against severe setbacks is essential. Types of coverage include life, health, auto, homeowner’s or renter’s, disability, and liability. Through the purchase of insurance, policyholders transfer the risk of financial losses to an insurance company in exchange for the payment of a premium.

Below are three recommendations to purchase the best coverage for the lowest cost:

• Avoid Coverage Gaps- Keep coverage in force in between jobs to avoid the risk of incurring expenses out-of-pocket. If not immediately covered by a new employer’s health care plan, consider purchasing COBRA benefits to extend group coverage from a previous employer or Affordable Care Act marketplace coverage through www.healthcare.gov.
                                                                         
• Reduce Insurance Expenses- Consider using one or more of the following strategies to decrease the cost of insurance premiums:

• Longer elimination periods (e.g., disability and long-term care insurance)
• Higher deductibles (e.g., auto and health insurance)
• Staying accident-free or, if a driver is in school, getting good grades
• Maintaining a good credit score (for auto insurance in some states)
• Inquiring about available policy discounts (e.g., good driver and non-smoker)
• Paying premiums annually, instead of monthly or quarterly
• Paying premiums automatically vs. by check
• Buying multiple policies from the same insurance company (i.e., “bundling” property insurance)

• Shop Smart- Follow “The Rule of Three” and compare at least three insurance providers. A good way to do this efficiently is to contact an independent insurance agent who represents many different companies instead of a “captive agent” that just sells insurance policies issued by one company.

Insurance is first and foremost risk protection. The University of Georgia Extension fact sheet, Insurance Matters, has additional information about the features of various types of insurance.