Dipping Into Savings - When Your Unemployment Doesn’t Cover the Bills
Unemployment Check Then What?
This most recent recession threatens to dig itself in and keep many Americans on the unemployment line for longer than normal periods of time. What savings should you start dipping into and what goes first?
First is to file a claim with your state unemployment office and find out exactly what your weekly or biweekly benefit award will be. You’ll use this cash first and it will be direct deposited to your checking or savings account or loaded onto a convenient debit card you’ll be issued.
The EMERGENCY Savings Account
If you are one of the lucky few with a real emergency savings account, hit it, tap it, use it. That was the reason you worked so hard to sock it away, for unforeseen financial setbacks, lay-offs, etc.
But for most Americans the oft-advised emergency fund is non-existent. Regardless of the pros and cons you’ve heard on family emergency savings accounts, truth is few are successful. It could take years to save the widely accepted 6-months worth of income and expenses—just not a realistic financial goal.
What is much more realistic and useful especially for times just like this is to make sure your family has a variety of financial savings, some quickly made liquid if necessary.
The best avenue for tapping into money is to first take what’s in your household savings accounts.
Tip: Cut all spending to the bone, really bear down on your daily cash-giving habits and be brutally honest when eliminating lifestyle expenses (daily latte--$3+, trips to the dvd store $4 a dvd, 99 cent buys on iTunes, satellite radio, extended cellphone packages with unnecessary bells and whistles, expanded cable, etc)
Once you’ve sliced and diced your personal spending then take your savings and make an itemized spending plan for it in combination with your unemployment benefits.
Caution here: Credit cards are very attractive options when you’re on the skids financially—they are TOO easy. If you are financially irresponsible and already have credit problems, put them away. If you have $0 balance, low interest rate, and great credit history then you could reasonably use a credit card in a pinch. Sensibly avoid any major spree and pay the balance off ASAP.
Where you borrow from during a long-winded lay-off can make or break you in the long run. You really, really don’t want to begin tapping your retirement fund. And unfortunately it’s the big idea on everyone’s mind and for good reason: for some workers the retirement fund has a large storehouse of money. But, be stern with yourself and exhaust other options.
Selling off your stocks is hotly debated, but could be the lesser of other financial evils, such as your retirement, home equity loan, or worse—bankruptcy. Remember, you’ll be responsible for capital gains taxes.
Start using your cash in this order—unemployment, then any savings accounts before anything else.