Planning for Income Loss

Whether its expected, as in the waxing and waning of cash flow in small business, or unexpected due to job loss, having a sudden drop in income can be stressful. As if dealing with the emotional and schedule changes weren’t enough, financial pressures can drive someone to the breaking point.

As someone who has lost their job suddenly – twice – I know this better than anyone. But there are certain safeguards you can take to soften the blow.

During boon times:

1. Pay yourself first. As a general rule of thumb when you’re working you should be able to pay yourself 12% of your salary. This money should be split between retirement and savings. Your savings should be liquid and easily accessible just in case. This could be any number of things, not just job loss. You may need it for a new roof, when your car blows up, or even lawyers fees. Don’t think these things won’t happen to you – because they happen to all of us at one point or another.

2. Go to the doctor. Make sure when you have insurance, or the money to cover medical costs, you do as much preventative care as possible. This includes stocking up on prescriptions – a 90-day supply is best – and things like contact lenses which can be purchased in entire years worth in advance.

3. Pay down debt. I know this isn’t a fun one, but the more you pay down now, the less painful bills will be later when you are cash-strapped.

4. Examine all your bills monthly, or at least quarterly. The biggest thing I feel foolish about is that although I took a look at our regular bills pretty often, there is so much more I could have done to reduce them without reducing service or our lifestyle. Now I get the same things for a lot less. Make a few phone calls. Negotiate contracts. Shop around. Only pay for what you really need and use. Ask for reduced APR or refinance. All of these things will save you tons of cash in the long run.

5. Buy coupons and discounts now, to treat yourself later. Probably one of the biggest things that has kept things fun and “normal” is buying Groupons when things are good, and spending them when things are bad. This allows you to get that spa treatment, or go out to eat with friends even when you don’t have the cash in the bank to do so.

6. Take classes now, to DIY later. Whether it’s cooking, sewing or carpentry the more you can do on your own the more money you will have in your pocket. Having these homesteading skills will help you when you don’t have that $200 to call the plumber.

During lean times:

So you’ve just got your pink slip. What do you do? Well first schedule as many medical appoints as time will allow (and insurance will cover), and renew prescriptions. Usually your insurance will last at least two weeks, and sometimes until the end of the month.

File unemployment immediately. Don’t wait. There is usually a two week waiting period before you actually are eligible for benefits, and then you must wait another two weeks to receive any sort of payment. Start the clock as soon as you are eligible.

When you receive the paperwork, file for COBRA insurance benefits. Yes, they will be painfully expensive, but you need to make it work for a few months until you can explore (and apply for) other options. Individual insurance applications can take up to six weeks to be processed, and you can get rejected. Buying into COBRA will buy you the time you need.

1. Re-evaluate needs and wants. Needs are keeping a roof over your head and food on the table. Wants are your gym membership, your cable and your cell phone data plan. If things are tight cut out the unnecessary expenses.

2. Access your savings. Dip into your savings, not your credit cards, for those necessary expenses I was just talking about.

3. Use your time creatively. Besides creating targeted job applications and resumes, you can use your time wisely to save money. For us this  means going to a food auction on Tuesdays, hitting up farmer’s market deals on Wednesday afternoons, and house sitting for some extra cash. Now that you are available during the day – what’s accessible to you? A free yoga class? A knitting circle? Choose things that are healthy for you, and your pocketbook.

4. Put payments on hold. In some cases, like student loans, you can claim financial hardship and actually put your payments on hold for up to a year. This might free up a few extra bucks a month that can get you through a tough spot. When you do get a new job, be sure to start paying again, and make up for those past payments if you can.

5. Apply for assistance. Although many middle income families make too much for government assistance, it doesn’t hurt to apply. This process can also take up to six weeks, so if you think you’re eligible apply right away. In addition, many families don’t realize that food banks often do not have income requirements, so if you need help ask. Medical assistance can also be acquired directly through physician groups or hospitals if you are rejected for traditional government assistance. And families with kids can get health insurance for their children regardless of their income. Rates are adjusted on a sliding scale.

By using these tactics hopefully income loss won’t be financially catastrophic. And best of all you won’t put yourself in a dire situation where you have to take any job that comes along. Having the freedom of choice is priceless, and essential to your well being and happiness.

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  • Ccase

    If you have school age children, check to see if your school lunch program has a free or reduced lunch program.   Your children  may qualify if you are unemployed or out of work for an illness or injury.   If your school offers breakfast, that may be included in the free or reduced plan.
      Our town has a food co-op plan monthly at a local church.  No income requirements and sometimes they have lots of fresh produce or bread to give away that was donated.
       My husband had emergency surgery while unemployed.  The hospital worked with us and greatly reduced his charges.  Just ask right away, don’t wait till the bills come!
      I agree, the best thing is to be out of credit card debt and owe as little as possible.  Not paying $$ every month in credit card intrest for a new outfit or flat screen tv will be the best help of all, unemployed or not.