How to survive unemployment
Getting through times of unemployment is tough. There are some steps you can take to handle your finances now that you're unemployed and in need of money.
1. Create an unemployment budget
One of the first things you may need to do is go on an unemployed budget. Use a budgeting tool to figure out which expenses can be removed from your budget and look for ways to save money.
A tool like Empower allows you to look at your spending if you're not sure where your money has been going. This helps you visualize where you may be able to cut back and spend less money, and it's also free to sign up to.
Another budgeting app that can help you survive without a job is YNAB. With this budgeting tool, you make a plan for each dollar. YNAB connects you with your money and helps you figure out where the money is going and can provide you with a way to plan and stay on track.
Your barebones unemployment budget might not be easy to stick to. But it helps you stretch your dollars a little farther as you figure out how to make money while unemployed and as you look for a new job.
2. Apply for unemployment benefits
Apply for unemployment benefits as soon as you're laid off. These benefits are handled on a state level. Contact your state's labor department to find out what the process is. The CARES Act (which we covered in our Mortgage relief article) authorized higher unemployment benefits temporarily during the pandemic. So, you may be able to get a higher amount each week than you would in normal times.
In some states, it's taking a while to process the benefits. Have your unemployed budget in place and look for other ways to survive without a job while you wait for your benefits to start. Also, make sure you understand the requirements since there may be criteria that include actively looking for a job or doing volunteer work to receive benefits.
3. Access community resources
Another way to survive without a job is to look into community resources. Check to see if you can get help from a local food bank. There may also be community assistance programs aimed at helping you cover utility costs. Research your options and find out what you can do to access available resources.
While it can be difficult to ask for help in this way, you should also realize that it's probably temporary. And you'll be using the resources for only a short period of time. These resources can help you free up cash flow for other expenses that may be more immediate.
4. Talk to creditors
As soon as you lose your job, contact your creditors to discuss the situation. Some lenders offer special hardship payment plans because of the COVID-19 pandemic. You may be able to receive forbearance on your loans or even skip payments. If you're having a difficult time paying for your mortgage, there may also be options available for you to postpone payments, depending on the type of loan.
Keep in mind that these programs won't result in reduced costs You'll still be charged interest, and your payments may be added to the end of your loan term. This lengthens the amount of time you're in debt. However, if you need access to more cash flow right now, and if you're looking for ways to make your money go farther now that you're unemployed, this can be one way to do it.
5. See if family can help
Depending on your situation, you may also be able to turn to friends and family. Be careful, though. You don't want your family or friends to put themselves at financial risk at this time. If your parents are able to provide you with some temporary help and support without raiding their own retirement accounts or putting their finances in jeopardy, this could be a way to help you survive without a job for a short period of time.
Be considerate if you're taking help from family. Later, if your parents end up needing your support because they took money out of their retirement account to help you right now, it will be your turn to support them. Carefully weigh the situation before turning to family and friends for help. Sometimes, it's not the best choice, even though a little help can go a long way.
6. Work on a side hustle
Figure out how to make money while unemployed. Depending on your state, you might be able to bring in money with a side gig while still collecting your unemployment benefits. Working on a side hustle helps you bring in a little extra money while keeping you afloat.
Signing up for delivery services like Instacart and DoorDash, and working on your own business can help you bring in money. Look at gig-economy jobs like UberEats as more people order in. Plus, you might be able to grow a side hustle — like freelancing, consulting, or something else — into a full-time income down the road.
Withdrawing funds to survive without a job
When trying to figure out how to survive without a job, one way to do it is to draw on funds you may have saved up, or withdrawing retirement money. Understand that each of these options has consequences. Carefully prioritize your funds and where you get the money. Here are some sources that may help you now that you need money while unemployed.
1. Emergency fund
Tap into your emergency fund if you have one. You pay tax each year on the interest you earn on a high-yield savings account. But you don't pay tax on your withdrawals from the account since you paid income tax when you earned the money you put into the account. Make your emergency fund last longer by pairing it with unemployment benefits, a barebones budget, and other steps designed to stretch your dollars further.
2. Roth IRA contributions
If you have a Roth IRA, you can withdraw contributions (not earnings) at any time without paying taxes or penalties. If you've made contributions over the years, this can help you cover some of your costs without extra penalties. However, you'll still have to pay an opportunity cost for the missed time your money could have been in the market.
3. Taxable investment accounts
You can also withdraw money from your taxable investment accounts if you have them. You will, however, have to pay tax on any gains. But if you're at least 59 ½ years old, you won't have to pay an early withdrawal fee. And even if you are younger, there are times you can withdraw without fees.
Be careful to liquidate shares that are older. That way, you're more likely to qualify for the long-term capital gains rate. If your income drops low enough, you might not even have to pay capital gains tax, depending on which tax bracket you fall into.
Another option is to sell stocks that have lost value. You still get the cash you need, but because they are losing investments, you can deduct the losses from your taxes, reducing your income at tax time and potentially helping yourself through this time.
But again, you lose the opportunity cost since your money is no longer in the market, and you could regret taking the money out if the stocks increase in value later on.
4. Borrow from your 401(k)
If you have a 401(k) account, whether as an employer-sponsored account or a solo 401(k), you can borrow up to $50,000 or 50% of the vested amount (whichever is less) without paying a penalty. The CARES Act doubles these amounts if you are affected by COVID-19, by either being infected with the virus or loss of employment. You have five years to repay this loan.
5. Tax-advantaged traditional retirement accounts
Finally, if you have tax-advantaged traditional accounts, you might be able to take money from them to help you if you need money now you're unemployed. The CARES Act temporarily allows you to withdraw up to $100,000 from your IRA or 401(k) to deal with coronavirus related hardship. You can do this without an early withdrawal penalty.
On top of that, you can avoid paying tax on the money if, within three years, you repay what you take out. But if you don't repay the money, you can spread that tax bill out over three years, making it a little more manageable.
Make sure you check the provisions if you go this route because you want to be in compliance to avoid the penalty for early withdrawal. Talk to a tax professional about the tax consequences and how to manage them.
Check all your options
It's never easy to figure out how to survive unemployment. However, with a plan in place and when you know all your options, you have a better chance of figuring how to survive without a job — at least in the short term until you can find new employment.
If you lost your job due to COVID-19, check to see if you qualify for any benefits. Talk to your creditors about postponing your loan payments. Look for other ways to get money, such as a side hustle. And consider dipping into your retirement account and other funds. While it's not fun to be unemployed, with the right budget and patience, you can hopefully be back in the workforce in no time.