Five Tips to Financially Prepare for an Unexpected Loss of Income
With cutbacks, mergers, and downsizing, job security has become a thing of the past. Nothing is guaranteed when it comes to longevity within the workplace. Do you have a plan if faced with an unforeseen job loss? The Pennsylvania Institute of Certified Public Accountants offers these five tips for preparing and coping with unemployment.
Create a Financial Plan
Look at your monthly expenses to determine how long you can cover them if unemployed. Planning – and sticking to – a budget and trimming nonessential expenses are key. Also, reach out to your credit card, auto, mortgage, and insurance companies to inquire about lowering your annual percentage rates (APR) or reducing your monthly payments until you obtain steady employment.
Apply for Unemployment Benefits
To bridge the income gap, you may choose to apply for unemployment benefits. The length of time you can collect unemployment benefits in Pennsylvania is typically 26 weeks. Keep in mind that taking a severance package, temporary work, or withdrawing from retirement accounts may prevent you from receiving unemployment benefits. For state-specific information on unemployment benefits and employment assistance, visit the Pennsylvania Department of Labor and Industry
Plan for Insurance Coverage
Health care premiums can be a large expense for most families. Maintaining health care coverage after an unexpected job loss can be difficult to manage. Under law, you may have the option of staying on your employer’s plan for up to 18 months. However, you should compare rates from multiple insurance companies to find the best combination of rate and coverage affordable for your budget. Note, employees that opt to continue insurance coverage under their employers’ group coverage are responsible for paying 100 percent of the premiums. This means that in addition to paying your share of the premium, you will now have to pay your employer’s share as well. Because the Affordable Care Act is changing the options people have for obtaining insurance, it may be best to research other options than simply remaining with your former employer’s plan.
Creative Cash-Flow Solutions
Turn unused, unwanted items in your home into a profit by coordinating a garage sale or by selling gently used items through a local consignment shop. You can also try marketing your items in an online auction, such as eBay, selling to the highest bidder. Any items you are unable to sell can be donated to charities such as your local Goodwill for a potential tax break. IRS Publication 526
can help guide you through the details of charitable giving.
Job Search Expenses Can be Tax Deductible
Whether you’re working on your résumé or attending networking events, you may be able to deduct some job hunting expenses on your federal income tax return. According to the IRS, to qualify for a deduction your expenses must be spent on a job search in your current occupation. You may also deduct the amounts you spend preparing and mailing out your résumé. Again, these expenses can be tax deductible only when you are searching for a job within your current profession.
If traveling is necessary during your search, you can deduct expenses to and from the locations you travelled. As a rule of thumb, be sure to keep receipts and to document the amount of time you spend looking for work. It may also be helpful to discuss your options with a tax advisor.
Consult a CPA
A certified public accountant (CPA) can help you analyze your current situation and determine the best course of action with regard to your personal financial plan. Many CPAs receive specific education and training to assist clients with short- and long-term personal financial goals, and have earned the personal financial specialist (PFS) designation. To learn more about planning for the unexpected, visit the consumer section