Making ends meet when your income is reduced

A job loss is something that happens to many of us, and it’s not the end of the world. Mapping out your financial priorities and drafting a budget can go a long way while you are in a job transition. Let’s start with budgeting.

Analyze and prioritize budget outflows
If you haven’t paid much attention to your budget before, it’s time to roll up your sleeves and take stock of where—and when–you spend your money. Analyze online banking transactions to identify recurring payments–such as utility payments, subscriptions and membership fees. You’ll also want to track any housing or debt payments, as well as consumables like groceries, gas and dining.

Once you have a good understanding of where your money goes, identify things you can live without or remove. Perhaps you can get rid of the streaming media service you haven't utilized in months. 

Analyze budget inflows and make a plan
When your employment was discontinued, you may have received a severance package, final paycheck, and a payout of any accrued paid time off. In addition to collecting unemployment benefits, you should have a pretty good idea of how much money you’ll have for your budget. If you planned ahead, you may also have an emergency savings account you can utilize. If not, make an emergency savings account a priority when better times prevail. 

Once you have an idea of your new income, you’ll be in a good position to understand how close you are in terms of covering your expenses on a monthly basis. 

What if you come up short? You may have options, including credit insurance, additional debt and borrowing from your retirement account.  

Credit insurance
Credit insurance can help cover the cost of loan payments while you are unemployed. If you aren't sure if you have this type of coverage, call your mortgage lender or credit card provider. Perhaps you initially signed up for such protection, which adds a few dollars to your payment every month. However, you may have to wait for a while before receiving benefits.

Forbearance
You may be able to put some of your loan payments "on hold" for a short time. Depending on your lender and the type of debt you hold, interest may or may not accrue during this period. Additionally, you'll want to know if the payments you are skipping will be due all at once at the end of this period, or if those extra payments will just extend your loan term.

Credit card debt
Generally speaking, it’s not advisable to take on credit card debt if you aren’t sure how to pay for it. However, your options may be limited. If you have multiple credit card accounts, choose the one with the lowest APR. Also, avoid the temptation to use cash advances from credit cards, as they often come with extra fees and higher rates.

Borrow from retirement accounts
Some employer 401(k) plans allow you to borrow up to 50% of the value of the account or $50,000, whichever is less. It is true you can use the funds for the down payment on a house or a hardship, but it will still be assessed a penalty of 10% on the amount withdrawn. Additionally, an income tax must be paid on the amount as well. While some of the interest is paid to your account instead of a bank or financial institution, the double taxation eliminates most benefits.For specific tax advice, please consult a tax professional

Meet with a professional
The Financial Advisors at Addison Avenue Investment Services, a division of First Tech, can help you plan ahead when you’re facing an unexpected job change. Make an appointment today and make sure your plan is keeping up with your life. 

Registered address: 1011 Sunset Blvd, Rocklin, CA 95765 │ 855.744.8585
Financial Advisors offer securities through Raymond James Financial Services, Inc. Member FINRA/SIPC and securities are not insured by credit union insurance, the NCUA or any other government agency, are not deposits or obligations of the credit union, are not guaranteed by the credit union, and are subject to risks, including the possible loss of principal. First Tech Federal Credit Union and Addison Avenue Investment Services are not registered broker/dealers and are independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc.