While there are multiple signs that our economy is on the upswing, over fourteen million people remain unemployed. There are indications that re-employment will be a slow process because many corporations have excess production capacity and federal, state and local governments will be under increasing pressure to cut expenses…including labor.
Many out-of-work people make the mistake of continuing to live the lifestyle they had while they were employed, oftentimes riding out a severance package, burning through personal savings and allowing credit card debt to rise.
If you or someone you know is out of work, here are some commonsense tips for creating an effective financial management plan:
Make it a team effort. The first important step is to acknowledge your situation and realize that you’ll need to make significant lifestyle adjustments, even if it’s only temporary. Make sure you get the support of your key family members including your spouse and children who are old enough to understand the situation. Give everyone an opportunity to pitch in and offer suggestions for cutting expenses. In my experience, people are far more willing to help when ‘asked’ for their ideas and support.
Create a ‘Zero-Based Budget’. Managing cash is never more critical than in the middle of a financial crisis. The concept of the Zero-Based Budget is to review all expenses and separate expenses that you have no choice but to pay versus all other expenses. The purpose is to get a clear picture of how much money is needed to cover your most basic expenses. This can be quite revealing as many people find that much of their spending is discretionary. To assist you, I’ve developed a Zero-Based Budget form that ties into a user-friendly on-line money management system. Visit www.StewartWelch.com; click on ‘Resources’; then ‘Zero-Based Budget” form.
Preserve your retirement accounts. Unemployed workers will sometimes invade their retirement plan for needed cash. Taking money from your retirement plan triggers both a federal penalty of ten percent (for people under 59½) as well as ordinary income taxes on the proceeds. A $10,000 premature withdrawal could cost $4,500 or more…making this the most expensive money you could access. Retirement plan funds are also shielded from bankruptcy. Think of this as your ‘start-over’ money should you be forced into bankruptcy.
Get or create a job. First, if you are out of work, realize that you still have a 40-hour per week ‘job’. It’s to get a new job! Stay in your work routine but use the time to build your resume, network, go on interviews, meet with recruiting firms and search the want ads. If I’m right about a slow re-employment rate, you’ll want to consider accepting a ‘suboptimal’ job in order to generate cash flow while you continue to search for your best job. Alternatively, you could use this as an opportunity to start your own business. Take out a piece of paper and make three columns. In one column, list all of your strengths. Examples might include: detailed oriented; analytical; task oriented. In the next column, list all the things you are passionate about. Examples might include cycling, fitness, investing or teaching. In the final column, make a list of all the possibilities for making money…drawing from your ideas from the fist two columns. This exercise could help you launch your own business.