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| Uncommon Sense | 14 tips for living through a layoff
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You can weather the crunch by monitoring your finances, controlling your spending and changing how you repay debt.
By MP Dunleavey
Editor's note: Columnist MP Dunleavey and eight other women have come together online to strip away the myths surrounding money, lay bare their assets and liberate themselves from debt. Follow the quest for financial fabulousness of these "Women in Red" every second Monday in Dunleavey's column on MSN Money.
Losing your job is often described as one of life's most stressful events -- right up there with divorce, moving and the death of a loved one.
Fortunately (sort of), Beth knew that her contract with the Bureau of Land Management was ending this past June. So in the months prior to her layoff she got busy looking for her next job.
Given how proactive she was, I assumed she'd find one right away. "So did I!" she admits. But it's been almost eight weeks now, and Beth has realized that she needs to start thinking even more strategically about her family's finances.
Financial adjustments
Beth has a lot going for her. She's young (39) and healthy, and her husband, Scott, has a full-time job.
Still, until now Beth has been the primary breadwinner with a comfortable monthly gross income of $4,162. She's now bringing home just 40% of that in the form of unemployment benefits of $1,676 a month.
Switching to her husband's health plan will cost them an extra $250 a month. In addition, since the government doesn't withhold taxes from unemployment checks, Beth needs to set aside money for taxes.
Of course, when finances are tight, Murphy's Law of Money always strikes. "We had about $700 in savings that I thought we could use as a cushion," Beth says. "But then we had to replace the tires on our car -- and the SAME day our cat developed an abscess in her eye. That was a good $300 to $400 loss in one day."
Staying calm
Despite losing a chunk of her savings, Beth says things would have been worse if she hadn't been a Woman in Red all these months. (I swear I didn't make her say that.)
"Being really deliberate in how we handled our money this past year helped set the stage for dealing with this layoff," she says.
More 'Women in Red' on MSN Money
Here are some steps that gave Beth a more stable financial base when her layoff hit:- In the last several months, she and Scott set up an automatic transfer of $50 into their savings account each month, which provided a small emergency fund.
- They paid off a $2,500 balance on one of their credit cards.
- They tracked all of their expenses so that they could work with the the 60% solution budget.
- They cut back unnecessary expenditures like eating out, Beth's occasional mini-splurges, and pricey groceries ("We saved a lot just switching to a cheaper store," she says).
- She and her husband redirected their money into priorities like retirement and their daughter's college fund. "Overall, we really streamlined our finances."
Living on less
Still, the reality is that Beth and Scott are facing a serious shortfall, and it's unclear how long it will last.
Although the number of long-term unemployed -- those out of work for more than 26 weeks -- dropped to 1.3 million in June from about 1.8 million a year ago, that's still about double what it was in 2000.
Plus, the median number of weeks a person can expect to be unemployed rose from 8.2 to 9.1 weeks this June.
Beth says she noticed that a fringe benefit of being jobless is the instant cutback in daily expenses like gas, lunch and snacks. But the family's gross monthly income of about $7,000 has dropped to $4,676.
The net figures look a little better. Beth and Scott now take home about $4,076 as opposed to $4,416, but that's a little misleading. Once Beth starts setting aside money for taxes, their net will be about $3,776. Their basic monthly costs come to about $3,233.
| Adding it up | | Beths expenses | | | Mortgage | $725 | | Daughter's preschool | $756 | | Health insurance | $250 | | Car payment | $323 | | Student loan | $121.15 | | Basic phone | $29.90 | | Long distance | $29 | | Internet | $17 | | Electricity and water | $120 | | Heating oil | $83 | | Gasoline | $80 | | Credit card | $150 | | Groceries | $350 | | Medications | $50 | | Pet care | $20 | | Life insurance | $129.45 | | Total | $3,233.50 |
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With $540 a month to spare, Beth and Scott may not be suffering, but their situation is precarious. If Beth doesn't land a job in the next month, any sudden financial blow could send them spiraling into debt.
Beth has already done the top three things most experts advise in the case of a job transition -- steps you should take immediately if you're unemployed or about to be:- Calculate exactly how much money you have coming in.
- Monitor exactly how much you're spending and on what.
- Figure out ways to cut back.
More tips to get you through
Here are some other important moves to make to keep your financial situation stable:
- Inform your family. "You wouldn't believe how many people try to hide their unemployment," says Nancy Collamer, author of a downloadable book called The Layoff Survival Guide. Collamer recommends telling your spouse and your children so the whole family can act as a team when it comes to making serious financial changes.
- Keep monitoring your spending. If you did an expense breakdown like Beth did, you probably did it while you were employed. Jim Stringham, Ph.D., co-author of "The Unemployment Survival Guide," recommends using money software or keeping a daily spending notebook while you're unemployed as well. "Seeing where your money is going will help to reduce anxiety because it gives you a sense of control, which is very important right now."
- Put debt repayment on hold. Beth and Scott are paying $150 a month on their remaining credit card when they could pay the minimum for a while (about $100) and add an extra $50 a month to their cushion. If you owe money on a student loan (as Scott does), you may be able to defer those payments as well.
- Spend down your FSA. Before you get laid off, spend as much as you can of the amount you decided to set aside in your flexible spending account -- even if you haven't made the full contributions yet. Even after you're laid off, you're still entitled to be reimbursed for any medical expenses you incurred while you were still employed (but not afterward, sorry). If possible, schedule elective medical procedures, dental work, eye exams and other health-care items that aren't reimbursed by your insurer prior to being laid off.
- Consider BIG cutbacks. Beth says that if push comes to broke, they can quit using their car for a few months, which could save them $100 a month in gas. She also estimates that they can save another $100 a month from their current $350 grocery bill by cutting back on meat, wine and prepared foods. If Beth's job search drags on, they could also take their daughter out of day care -- a savings of $756 a month. "But that's a last resort," Beth says, pointing out that they'd really be up a creek if they gave up their tough-to-find daycare slot, and then she got a job.
- Be smart about taxes. Because unemployment benefits are so low, many people assume they won't owe any extra taxes on this money. While the withholding from your previous job may cover you, in Beth's case it will not. If you're concerned, file a form W4-V with your unemployment agency to have 15% withheld, or you can pay quarterly taxes (for more information, go to The In-Depth Guide to Taxes).
- Keep track of deductible expenses. Resumes, business cards, phone calls, unreimbursed job interview trips -- many of your job-hunting expenses are deductible if you itemize using a Schedule A.
- Invest in yourself. Given how rapidly some fields are changing, Collamer suggests finding ways to enhance your skills. "Don't take a class just to take a class -- make sure it will make you more marketable," she says.
- Maintain your network. This may seem obvious, Collamer says, but make sure that colleagues and friends have all your contact information so they can reach you while you're in transition. "Sometimes people are so depressed they forget how important it is to reach out. Right now your network is invaluable."
- Raise extra cash. Yard sales, roommates, part-time jobs are all good ways to bring in extra money. Just bear in mind that a side job or consulting work could reduce or eliminate your unemployment benefits.
- Don't worry, be happy. Both Collamer and Stringham say it's vital to keep the blues at bay. Stringham advises job-hunting only four days a week. "Five days is too draining," he says. Collamer adds that if it's feasible financially and time wise, taking on freelance or volunteer work can help boost your morale.
Keep the faith
Above all, Stringham says, it's important to know that you will find another job and to stay open to all the possibilities. "Have faith in yourself," he says. "You can apply for something that isn't directly in your field of expertise. Don't be intimidated by job descriptions. Let the hiring person decide if you're a good fit."
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