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
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.
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.
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).
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.
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.
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.
provide a sustainable source of long-term wealth if handled properly.
Unfortunately, many people lack financial knowledge and experience to handle
¨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.
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.
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:
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
for the salaries of previous employees.
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.
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.
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:
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
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
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.
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.
are three recommendations to purchase the best coverage for the lowest cost:
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
Insurance Expenses- Consider using one or more of the following strategies
to decrease the cost of insurance premiums:
elimination periods (e.g., disability and long-term care insurance)
deductibles (e.g., auto and health insurance)
accident-free or, if a driver is in school, getting good grades
good credit score (for auto insurance in some states)
available policy discounts (e.g., good driver and non-smoker)
annually, instead of monthly or quarterly
Paying premiums automatically
vs. by check
policies from the same insurance company (i.e., “bundling” property insurance)
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.
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.