Categorized | Job Hunting

The Business of Being Unemployed

Posted on 04 May 2009

Helpful hints for out-of-workers everywhere.

Now that you’re unemployed, it stings to remember why they tell you to store three to six months’ salary in a savings account for a rainy day. And now it’s pouring. But how many working people can afford to save anything, much less a half-year’s pay?

“The concept of having several months of your salary readily available is both a well-advised recommendation and a highly impractical solution,” says Stan Means, a certified public accountant in Mercer Island, WA. If you’re managing your finances prudently, however, you probably have built up assets that can be converted to cash with little sacrifice of value, he adds.

While this is good news for financial gurus, the remainder of the out-of-workforce needs a few solid steps on surviving the crisis.

The job of the unemployed is to get a job, and it should be an 9-to-5 endeavor, five days a week.

First Things First
Once the unthinkable has happened, “the first step is to begin collecting unemployment,” says Andrew Schwartz, a CPA with a Boston tax practice serving young professionals.

For most people, the amount collected for unemployment is significantly less than what they were earning at work. To make matters worse, unemployment is taxable.

To avoid a big tax bill next April, Schwartz advises having taxes withheld from your unemployment check. If you’re married and your spouse is employed, reduce the withholding from your spouse’s paycheck by filing a new W-4. “With only one spouse working, the couple’s taxes will be decreased,” Schwartz says.

Budget for Unemployment
Once you’ve begun the process of collecting unemployment, make a budget so you know exactly how much money you need every month to pay essential bills. “Until [you] get a handle on that, it’s pretty difficult to figure out what to do,” says Kari Knudson, a career counselor with the Centerpoint Institute for Life and Career Renewal in Seattle.

After you’ve listed all of your expenses, Knudson says, determine which are fixed costs that must be paid (such as rent or a mortgage, loan payments and health insurance) and which are variable expenses.

The variable expenses–including food, entertainment and work-related costs that you no longer have–can be reduced. But, don’t forget to include the new expenses you’ll have as part of your job search, such as counseling and resume writing.

Means points out that reducing expenses to an absolute minimum will “minimize the size of the financial hole that the unemployed will be digging for themselves.”

Use Assets Wisely
Now that you know how much money you need, it’s time to determine how to find the balance of cash to supplement unemployment. “The most likely source available to the unemployed who also happens to be a home owner is a home equity line of credit,” says Means. He recommends establishing this while you are employed, rather than waiting till you need it.

Schwartz points out that the bulk of savings for most people is their retirement accounts. But tapping into these can cost a pretty penny.

“Amounts withdrawn are generally subject to federal income taxes, state income taxes and a 10% early withdrawal penalty,” Schwartz says. These taxes and penalties could add up to more than 40% of the amount withdrawn.

Schwartz recommends, rather than simply withdrawing the money, take advantage of a rule that allows a 60-day rollover without penalty. If you are married and have money in two retirement accounts, you have up to 120 days to repay the money.

Another option for accessing retirement money is to have the working spouse borrow money from his or her 401(k) plan.

Time Off–With Good Behavior
Being unemployed doesn’t translate into sinking into the sofa and getting a workout with your TV remote. To help keep life as normal as possible, Means says, “it is important to attack each week just as you would if you were working at a job. The job of the unemployed is to get a job. That should be an 8-to-5 endeavor, five days a week.”

Means says that, despite the obvious need for keeping up a job search, he advises clients and friends who have prepared for unemployment by setting funds aside to “seize the day” and take advantage of the enforced vacation.

“These people are usually the same ones who work too hard when they’re employed,” he says. “They probably should take time off before finding their next job.”

A final word of advice: Being unemployed doesn’t mean you can’t work. Look for part-time, temporary, freelance or contractor opportunities. Not only will you earn some much-needed money, you also may find a lead to your next career-track position.

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