With the nation's unemployment rate creeping upwards with each passing day, millions of us face uncertain employment prospects. Whether you've just been laid off — or are worried about future pay cuts — here are five steps you can take to prepare for the worst while hoping for the best.
- Stop all non-essential spending. Finding yourself out of work or facing pay cuts is gut-wrenching. There's no other way to put it. So it's human nature to try and comfort yourself by keeping your life as "normal" as possible. But from a financial standpoint the best thing you can do is use this painful experience as a catalyst to re-examine how you live your life. You may be surprised at how much you can eliminate without missing it, such as dinners with people you don't like, cable or phone features you don't use, and clothes you buy but never wear.
- Talk about money with your children. How much you say will depends on their age. What you don't tell them could hurt them much more than what you do. And kids like to help. So tell them, "We have $100 for groceries. Help me figure out how to best spend it." Or, "We have $50 for entertainment this weekend. We can spend all at once or save some up and have more next weekend, your choice." The lessons you teach about money and its inherent tradeoffs will stay with them for life.
- Don't Skip Out On Health Care. When people hear the word unemployment, often one of the first things they think of is "how am I going to pay the bills?" If you're young and healthy it can be tempting to pass on health insurance. That can be a recipe for lasting financial disaster. Check out Military.com's Benefits Channel to find a high-deductible catastrophic health care plan. Also, do what you can to get or stay in good shape — this will help your brain stay alert and lower overall lifetime health care costs.
- Avoid The Temptation to Dip Into Your Retirement Funds. Times are tough right now, for virtually everyone. It can be very tempting if you're laid off to decide to cash out your 401(k) instead of rolling it over or to raid the IRA cookie jar. It's a life or death emergency, please don't. Markets are down right now, but unless the world is about to implode, better times will return. Selling low (which is what you do if you cash out) and paying penalties and taxes is one of the worst financial decisions you can make. It's better to try to cut back on your spending, reset your family's expectations of what is a reasonable lifestyle, or take on any possible kind of temporary work that you can. For example, $1,000 today, growing at 7 percent per year for the next 20 years is almost $4,000.
- Use This Time to Brush Up on Your Personal Finance Skills. The one silver lining in all of this malaise is that personal finance is more popular. Now is the time to read that article, peruse that blog, or pick up that book and get your personal finance skills honed. Personal finance, like parenting, is one of those things we're all expected to just pick up along the way. A great way to start is to track your spending. Right now you may not be able to control your income — but you can control your spending. Budgeting is in vogue, and if you need a little extra help, check out our Power Budget Notebook on our website, or Military.com's Finance channel. Just knowing where your money is going can bring you an enormous sense of relief.
These are tough times indeed, but as Hemingway famously said, "Life breaks us all some of us just get stronger at the cracks." These five steps can help you batten down the hatches so that when the sun shines again on our economy, you'll reap the benefits.