How to Handle Your Money While Unemployed

Daniel Penzing
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Have you lost your job due to COVID-19? Follow our tips to keep your finances in check.

Have you found yourself unemployed recently? According to the Congressional Budget Office, the Labor Department projects that the economy will add just 20,000 jobs per month over the next year.

If your job search has been fruitless, don’t get down on yourself. According to the Bureau of Labor Statistics, the long-term unemployment rate has spiked.

If you’ve been affected by this unemployment rate spike, it’s an important time not to abandon your finances.

Below, we’ve outlined some tips for managing your pennies if you’ve lost your job.

In This Guide:

  • Demolitions
  • Soul Selling
  • Daily Tasks
  • Leveling Skills
  • How to Raise Your Skills
  • Custom Items
  • Quests
  • Finding a Place to Live
  • Work as a Blacksmith
  • Work as a Carpenter
  • Work as a Miner
  • Work as a Tailor
  • Work as a Weaponsmith
  • Work as an Alchemist
  • Work as an Enchanter
  • Work as a Jewelcrafter
  • Work as a Leatherworker
  • Work as a Painter
  • Work as a Skinner
  • Working on a Boat

How to Survive Unemployment

If you aren’t currently working, you’re either facing an unemployment gap, or you’re on an extended break between jobs. There’s a huge difference between the two and it’s important to know what it is before planning your financial strategy.

First, let’s define some of the terms you’re going to hear the most in the job market.

Unemployment Gap

A gap in the workforce is simply a long break between two employment positions. These gaps almost always indicate poor planning.

Unemployment gap statistics:

In 2006, the average duration of unemployment for those unemployed was 14.7 weeks.

It’s not unusual to have a few weeks of unemployment between jobs. In this case, it’s called a unemployment gap.

An unemployment gap isn’t always a bad thing. It’s natural to experience a gap after a layoff or between jobs. And don’t feel that every gap is a bad thing; it could be a very positive and healthy break in the workforce.

The important thing when transitioning from one job to another is to make it smooth so there is little to no income loss.

Create an Unemployment Budget

Creating a budget is a necessary part of managing your money, no matter what your financial situation is. However, this is especially true if you are out of work.

Your budget should include the money you will need to live on, plus extras for entertainment and other costs that pop up.

Make sure your budget accurately reflects your current reality. Consider the following financial realities:

◢ Health insurance will likely be an ongoing cost. Many employers offer health insurance as a benefit. If you have lost your job, you will likely need to purchase your own insurance. While your company health plan may be expensive, you may be able to find a less expensive option on the insurance market. The healthcare costs and coverage that you choose will depend on your specific situation and needs.

◢ If you are over 50 and have been working for the same company for over 20 years, you may also be able to purchase long-term care insurance directly from the insurance company at reasonable rates. You should check with the insurance company and your health insurance provider. Long-term care insurance is something you should consider if it is available.

Apply for Unemployment Benefits

If you are already receiving a check from the government, your unemployment insurance is probably tax-free. Unemployment insurance is not taxed like your work income might be. Many state unemployment offices will provide you with your renewal application in the mail about two weeks before your unemployment insurance check is about to expire. Apply for renewal as soon as possible to avoid missing a check if you allow the insurance to lapse for three weeks.

If you are apart of a union, it is up to your employer to collect the dues from your check. Every quarter of the year, you will be issued a check that collects a percentage of your pay, which will be set aside to be given to the union. Either on the statement, or through your pay stub, you will be given information on the amount of the deduction, which will be itemized with the total amount that will go towards union dues, the national union, and the international figures (if applicable).

Access Community Resources

When it comes to everyday tasks like shopping for groceries, buying your kids school supplies, you will often need to rely on yourself and not on government money, which can make working out how to manage your money while unemployed a tricky matter. It is important to remember that there are a host of financial assistance programs out there that are available to you. These programs can vary from municipality to municipality, so it is worth looking into what is available in your area.

The first step to working out how to handle your money while unemployed is to access community resources and understand the processes. For example, you will need to know the exact procedure that you must follow in order to get approved for financial assistance, and you will need to stay in contact with the relevant coordinators in order to ensure that you receive the help that you need.

While some local governments run programs that are designed specifically to help those who are out of work, a lot of those who are out of work will be eligible for federal assistance funds that are administered through the local government office.

If your state offers unemployment benefits, you will have to exhaust those before you can apply for federal funding, but this will depend on the exact rules surrounding the various government programs. A good example of federal funding is the unemployment assistance program, which is designed to partner with state funding to help qualified applicants.

Talk to Creditors

Before you stop paying monthly bills, give the creditors a call … it’s important!

They may be able to work with you to help you get your payments back on track.

But if you haven’t been able to work out a solution for your finances, then you might want to consider the following methods.

File for Bankruptcy!

If you are wondering how you’ll make your monthly payments if you’re unemployed, then you should consider filing for bankruptcy.

The process of filing for bankruptcy can clear away your debts and help you get back on track with your finances.

Getting approved for the process depends on a variety of factors, including the type of debt you’re dealing with.

Evaluate Your Salary and Income

Start by running through a budget. Even if you’re afraid that this will depress you, you have to remember that if you’re unemployed, then your savings are gone.

As such, you should be a bit conservative in your budget. You may want to prioritize debt payments and necessary expenses, like groceries, over less important items, like cable and cell phones.

See if Family Can Help

If the loss of employment is temporary, family and friends may be best suited to lend a hand. This could be a good opportunity to see if they can help with rent for a short period of time, or offer financial support for the expenses that you can't cover until you find a new job.

The key to enticing family or friends to lend a hand is to put a plan in place. Explain to them how you might be able to make it on your own (with your new strategy for minimizing expenses) and how their money would help you. You can even work out a pay-back plan, so they know when they'll receive their money back.

You could also consider taking out a small personal loan. You'll be able to get a larger loan amount than if you were just requesting the funds from your bank because it is a personal loan. It's a good idea to compare the terms of various lenders before you commit to a loan, to be sure you're getting the best deal.

Don't forget that your credit score will not be negatively affected when you take out a personal loan (unlike if you take out credit cards and run up debt). However, you will have to pay back the loan. So make sure you take that into account.

Work on a Side Hustle

When the money stops flowing in, it’s easy to shake your fist at the sky and shout, “Why?,” or worse, “Why me?” But the reality is that out of work is often just out of work. While you may have gotten yourself into a situation where you have no work (through shady dealings, an inability to adapt to the changing marketplace, etc.), chances are that there are plenty of people who would absolutely love to have a job like yours. So while it may be tempting to drop to your knees and beg the Universe for your job back (and maybe it will deliver; I’ve never tried), it’s better to look at your time out of work as an opportunity to re-examine your life and to put yourself in a position that’s even better when the work comes back.

Withdrawing Funds to Survive Without a Job

While there are some social security resources available to help you get by during a period of unemployment, you will need to make sure that you can still pay your bills. You can still withdraw money from your savings accounts, but keep in mind that you will have to pay taxes on that money when you receive it. While it might feel like you’re doing something illegal, know that you’re not alone, and that it’s an acceptable option. Just stay on top of the taxes to ensure that no penalties are due.

If you don’t want to end up in debt when you’re laid off, then you will need to save your money by cutting back on expenses. Look for cheaper sources of electricity, cars, or food without sacrificing quality. Get rid of anything you don’t need — such as things that are past their prime or in need of repairs. Also, consider moving to a smaller home if yours is a major expense. Look into severance packages and employee assistance programs offered by your previous employer.

Emergency Fund

When I was laid off, the first thing I did was set up an emergency fund. I set aside 10% of my monthly income and deposited it into an emergency savings account. It helps provide peace of mind knowing that I can handle an emergency if it happens.

If you’re currently unemployed, it would be a great idea to set up an emergency fund of your own. Even if you can only put aside a small amount of money each month, it can make a big difference especially during difficult times.

Make Sure All Debts Are Paid

While I didn’t have any debts to pay, if you do it would be best to prioritize payments based on interest rates and how long you ‘ve been paying the debt off.

If you have any credit cards or loans, pay them off as soon as you can. You’re going to have plenty of other expenses to worry about, so having debts really adds to the stress.

Establish a Budget

If you don’t already have one, it’s going to be very hard to get by without a budget. When I was unemployed, I set a personal budget that dealt with my living, food, and entertainment expenses.

Roth IRA Contributions

When you are unemployed, you may still be looking for ways to avoid owing taxes on that unemployment money. As a result, you may be considering contributing to a Roth IRA to defer the taxes until retirement. If that is the case, here is what you need to know about Roth IRA contributions

You can fund your Roth IRA with after-tax… income. But to do so, you cannot contribute more than your earned income for the year.

If you contribute more than this (up to the maximum allowed), you will have to withdraw that excess amount as an early withdrawal. Furthermore, you will owe income tax on the withdrawal as well.

If you contribute to an IRA, but you do so by the deadline, you can recharacterize your contribution and transfer it to another IRA instead.

Depending on the amount of your contribution, you may have to do this by October 15. This deadline is only for those contributions made between January 1 and April 15.

You should also know that you cannot directly transfer the money to another Roth. You must first have it converted.

Taxable Investment Accounts

Your taxable investment accounts are where you should hold your cash.

The money in your taxable investment accounts will make up the vast majority of your net worth. This is where you hold cash and earn interest, dividends, and capital gains. As long as you stay at or below the taxable income limit, you don’t have to pay taxes on the interest, dividends, or capital gains. This money will be needed to pay your everyday expenses and any tax due.

Borrow From Your 401(k)

If you were the type of person who was saving for retirement early or even semi-regularly, then you probably have a reasonable sum of cash saved away in your 401(k). But, even if you’re not in dire need of money, you may be tempted to tap into it if you find yourself out of work. After all, the taxes that you’re going to pay on it will be significantly less than the taxes you’d end up paying if you earned the money, and you’ll be able to use the money to get out of the rut that you’re currently in. You may even have a crisis to handle.

However, before you spring into action, you need to take a step back and explore your other options. It’s important to keep in mind that the money in your 401(k) comes out at a cost – that is, your future income potential. If you take money from your 401(k) without a plan to replace it, then you’re essentially surrendering a large piece of your future income potential.

Tax-advantaged Traditional Retirement Accounts

Check All Your Options

The first thing to do is to check all your options. Start by checking your unemployment benefits, which may or may not include cash assistance. Also, check to see if you can access these benefits by filing for an extension of unemployment.

Additionally, check to see what resources may be available through your local phonebook or government assistance offices.

When you check into cash assistance through government offices, you should be aware that there are particular programs designed for those who have little to no cash reserves and no job opportunities in sight.

These government programs are designed to help you keep a roof over your head while you look for a job.