The U.S. unemployment rate hit 8.1% in February after 651,000 jobs were eliminated, according to last week’s announcement by the Bureau of Labor Statistics. With a huge array of companies eliminating positions, almost everyone has at least considered the possibility that their job could be the next to go. Preparing for a worst-case scenario means you need to have a game plan for your finances ready to go in case that dreaded pink slip arrives on your desk.
Planning ahead means setting aside cash in an emergency fund. But here are a few tips on how best to manage your finances after a job loss:
1. Take stock: One of the first things to do is to take stock of where you stand financially. "Even if it's on the back of a napkin, write down what you have in cash, in your investment accounts and your retirement plans," says Daniel D'Ordine, a certified financial planner with New York City-based Life and Wealth Planning. "Next look at your debt, and really identify what are your absolutely non-negotiable expenses and what are flexible expenses."2. Use cash for essentials: If you’ve planned ahead and saved your cash in an emergency fund, it can be hard to start spending it. But losing your job does constitute an emergency, and that money was intended for essentials, such as rent, groceries and utilities. D'Ordine advises first starting with liquid cash reserves such as savings accounts or money market accounts, before moving on to any money you have locked up in a certificate of deposit (CD). "CDs are still just another type of cash," says D'Ordine. "You don't have to liquidate all of your CDs on day one, but don't be afraid to cash them in, even with an early withdrawal penalty."
3. Use credit for non-essentials: An emergency is no time to head out and buy a new flat-screen TV, but there may be times when non-essential spending, such as eating out at an affordable restaurant, might be required to maintain a positive outlook in what is often a very difficult time. In that case, D'Ordine suggests using credit cards to foot the bill for non-essential expenses. That way you can keep track of your spending while avoiding spending cash earmarked for your essential expenses.