Unemployment benefits often save people from the worst of financial strain after they lose their jobs, but with benefits expiring for 1.3 million people at the end of last year and the Senate snuffing efforts to extend them for three more months, that safety net is giving way for many Americans.
The Government Accountability Office reports that people faced with the end of unemployment benefits often turn to other forms of government aid, such as Social Security or disability insurance, instead. Another option is eating through any remaining savings or picking up odd jobs wherever possible. But the most useful survival strategies start before you need them – when you’re still employed. U.S. News interviewed financial experts on the best way to handle extended unemployment, and they offered these nine tips:
1. Create a survival-mode cash stash.
Gerri Detweiler, director of consumer education for credit.com, says that while a lofty goal such as saving six months worth of expenses is admirable and often recommended by financial advisors, it’s too intimidating for many people. That’s why she urges people to instead look at their budget and ask themselves, “What would I absolutely have to pay if I lost my job?” and then to save up one month worth of those bills.
2. Practice makes perfect.
It might sound like an odd theatrical exercise, but Detweiler says pretending that you’ve already lost your job, for a couple weeks or even a month, offers useful insights. “During that time, you can try to spend only on essentials and bank the rest in savings. Not only does this help you jump-start your savings, but it also lets you think through essential and nonessential bills,” without the pressure of actually having lost your job.
3. Protect your credit.
While it’s tempting to use credit cards to maintain your previous, employed standard of living, it’s not a good idea, Detweiler says, especially because you might be facing an extended period of unemployment or a future lower-paying job. That’s why credit cards should only be used for essential expenses, and similarly, retirement accounts should only be tapped as a last resort. To maintain your credit score, Detweiler recommends making at least the minimum credit card payment each month. “It’s not a great long-term strategy, but it can work to minimize credit damage in the short run,” she adds.
4. Look for other benefits.
If your unemployment benefits are expiring, other government benefits might still be available to you, such as assistance with food or health care. That’s an especially important point for anyone with young children. Katie Bryan, spokeswoman for America Saves, a program that promotes saving and involves more than 1,000 organizations, encourages people to visit the government site usa.gov, which includes information on grants, loans, mortgage payment assistance, health insurance and other types of benefits to help people get through difficult financial periods.
[See: How to Manage Money in Your 20s.]
5. Focus on the first $500.
When you do still have a job, Bryan recommends $500 as a good savings goal. “We want people to first pay down high-cost debt such as credit cards and payday loans, and secondly, to start saving for an emergency fund. Once you have $500 in there, you can build on it,” she says.
6. Think small.
Bryan says as soon as you lose your job, it’s important to cut out anything that’s not absolutely necessary, which includes cable and additional cellphone services. “Go down to the bare minimum of what you need to survive,” she says. Then, she recommends bringing in extra cash by clearing out closets and selling items at a garage sale or online.
7. Find a support group.
Feeling lonely can be one of the worst parts of unemployment, and fortunately blogs and Web forums can help provide much-needed support. The founder of ladyunemployed.com, who declined an interview over email because she says she prefers to stay anonymous, says she started her website with the goal of giving a voice to the unemployed and “a platform for [people] to share their story if they’d like.” Her site includes the stories of people who are unemployed as well as advice. (The tagline: “A safe place to feel discontent.”)
8. Get out there.
It’s so easy to stay home and mope, says Mary Abbajay, president of the consultancy Careerstone Group, but that can only exacerbate the sense of despair. “Being unemployed can be devastating on so many levels, including psychologically, financially and emotionally. So much of our sense of self-worth is wrapped up in our jobs and careers,” she says. That’s why she encourages people to take walks, meet up with friends, exercise, eat healthy and even network. “You never know what chance encounter is going to lead to your next job or next lead,” she adds.
9. Share your story.
Your network can’t help you if they don’t know you need help, Abbajay points out. She suggests making sure your extending network knows you are looking for a new job by talking about it openly. Volunteering and picking up a new skill in your newfound downtime can also help extend your network and increase the chances of an opportunity coming your way. She adds to help other people when you can, too. That kind of assistance is sure to come full circle.