You Ask. Bev Answers: How Can I Prepare for a Furlough?
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Question: What steps would you recommend someone take if they expect to be furloughed or laid off during the Coronavirus/Covid-19 pandemic?
If you expect to be laid off or furloughed due to the Covid-19 pandemic and are lucky enough to have time to prepare in advance, start by evaluating and stabilizing your finances:
- Understand what cash you have on hand, right now. Look at your savings and checking accounts and determine what other household income will still come in if you get furloughed or lose your job.
- Next, think about where you may be able to find additional cash if you need it. Does anyone in your household have a part-time or side job they can rely on? Do you have electronics or furniture you no longer use and may be able to sell? If you have equity in your home, consider setting up a home equity line of credit while you’re still earning an income, which can provide you with extra cash while you’re unemployed.
- Take stock of your current spending habits. Look for ways to cut back by figuring out how much money you spend and what you spend it on each week. Take stock of recurring entertainment and other nonessential expenses such as monthly subscription services. If there’s something your family can live without, try forgoing it now and banking the savings.
- Save as much as possible ahead of time. For as long as you remain employed, work hard to build up your emergency savings.
Once you get laid off or furloughed, it can take time for your first unemployment check to come through. In some cases, high application rates across the country have created longer than normal wait times for approval of unemployment assistance. It’s a good idea to familiarize yourself with the application process in your state, so you’re ready to file quickly when you need to.
Finally, if you’re out of other options, you might consider tapping your IRA, 401(k), Roth IRA or other qualified retirement accounts. However, this should be a last-resort scenario, as these funds are supposed to grow untouched so you’ll have the money when you need it in retirement. Be aware that if you decide to tap a qualified retirement account, you may owe tax on the withdrawals and you may have to pay a penalty for withdrawing your money early. Roth IRAs, however, allow you to withdraw your contributions (but not your earnings) tax- and penalty-free after five years, although there are exceptions to that rule. Talk with your tax advisor for more information on how a withdrawal might affect your finances.
These short-term solutions are meant to tide you over until you get back on your feet, but some come with risks, so think carefully before making any significant financial decisions.