Finance Q&A: How Should Families Prepare for Potential Job Loss?
Editor's Note: Do you have a question about your finances? Crosswalk.com welcomes financial columnist, Deborah Nayrocker. Deborah will be answering selected readers' questions in her monthly column. To submit your question, email us at: moneyquestions@crosswalk.com
Dear Deborah,
Q: My husband thinks that his job may be in jeopardy. What can we do now to make it easier to cope with a possible layoff? --Sue
A: You’re doing the right thing to stay ahead of the curve. When laid off, people first try to deal with their fear and uncertainty about the future. Planning ahead makes the announcement of a pink slip considerably more manageable.
Unemployment numbers don’t look good. According to Wall Street Journal (3/6/09), the U.S. has lost more than four million jobs. Economists predict the financial picture this year will continue to sour, with the jobless rate going into the double digits (WSJ, 3/08/09).
What are some sensible steps you can take now to make a possible layoff more manageable?
- Figure out your minimum expenses. What dollar amount do you need to pay the mortgage or rent, groceries, basic utilities, and essential insurance? What are your priorities? What can you do without? Sit down with your husband and analyze your budget.
- Add up your cash reserves. Then add to your cash reserves. How much is sitting in your savings, money market, and checking accounts? Decide what discretionary expenses you can reduce or cut to grow your emergency fund. Aim to save three to six months of living expenses.
- Develop a monthly spending plan. Record your spending and stick to your budget. Keep track of every penny you spend.
- Open a home equity line of credit (HELOC) at your credit union or bank. It’s easier to get this while you’re still working. This is a revolving line of credit. It gives you access to money you can use in an emergency. Interest rates are usually better than credit card rates. When you use your HELOC, you make a minimum payment every month.
- Cut back on credit card use. Keep your card balances at less than 50 percent of your available credit so you don’t hurt your credit score. Use only one credit card. And continue making the minimum payments on time.
- Pay down debt. Families with little or no debt are able to survive job losses better than those loaded with debt.
Dear Deborah,
Q: My husband and I have two preschoolers. I stay home and take care of our children, which I hope to continue doing. What can we do to prevent any big money hassles in the future? --Erin
A: We never know for sure what our future may bring. A car may need to be replaced or there may be cutbacks at work. There are three important things you can do now to plan for your family’s wellbeing:
- Build an emergency fund. Once again, aim for three to six months’ worth of living expenses, so you don’t need to borrow or beg when you’re faced with some tough financial circumstances. Recently, in a television interview, three homeless families were asked what they would have done differently. Without any hesitation, they all said they would have saved more.
- Write a will. If you don’t have a will, consider getting one soon. A will prevents the state you live in from making decisions about your assets. It protects your assets. A will also designates a guardian for your minor children and names an executor.
- Buy life insurance that covers both you and your husband. This protects the family income and net worth upon the passing of income providers. Consider buying life insurance equal to five to 10 times your family’s annual income. Your husband may already have some employee coverage. Get low-cost term insurance, which usually offers the best benefit for your premium. Look for a reputable insurance company with good-quality ratings. Insurers generally have ratings from A.M. Best, Standard & Poor’s, or Moody’s.
Published March 18, 2009
Deborah Nayrocker writes on personal money management topics, showing others how to take control of their financial future. An award-winning writer, she is a regular guest contributor to CBN.com and author of The Art of Debt-Free Living and Living a Balanced Financial Life, a new 12-week Bible study on money. Learn more about her work at www.ArtofDebt-freeLiving.com.