There are many ways to increase your income while you look for a new job, some of which you should look into immediately, and others only when you are truly desperate.
Reduce expenses
Increase deductibles on auto insurance
Check with your insurance company to find out how much you could save per month on your auto insurance premium if you increased your deductible. However, remember that if you get into an accident, you’ll have to pay the deductible out of pocket. Will you be able to come up with a large amount of cash while you’re unemployed? Balance the risk with the benefits.
Sell your car
While many people consider a car to be a necessity, you may be able to dramatically reduce your monthly expenses by selling yours–they are expensive to drive and maintain. Not only do you have to pay for gas and upkeep, but in many cases, you also have to pay insurance premiums and monthly car payments. This can add up to several hundred dollars per month–money you could really use when you’re unemployed. Keep in mind, however, that if you have a loan on your car, you might owe more than your car is worth; if you sell your car for less than the loan balance, you’ll still have to make payments until the balance is paid off (or take out another loan to pay off the car loan balance). Also, if you get another job, you may need to buy another car, and many lenders require a certain length of employment before they give you a loan. Investigate your options thoroughly before you sell your car.
Selling your car may also be a good way to raise a large amount of cash quickly. This will depend, of course, on whether you own your car, whether you have a loan for it, and what your car is worth. Again, this is a decision to make carefully. If you have a loan, call your bank to find out the procedure to follow, because until your bank releases the title, you don’t really own the car. They can also tell you the book value of your car and your loan balance. If you own your car outright, research its value at the library or on the Internet, and decide what price to charge.
Negotiate with your creditors
If you find that you’re having trouble paying all your bills, seriously consider negotiating with your creditors. Assuming that you have good credit, you may find it relatively easy to reduce the interest rates on your credit cards, skip a payment or two on your car loan, or reduce your monthly payments temporarily. To do this, you’ll have to put aside your pride and admit that you’re having financial difficulties. You’ll be in a much better negotiating position, however, if you call your creditors before you get into financial trouble. Some creditors will turn you down, but most will negotiate with you. If you wait until you’ve already missed more than one payment and the creditors are calling you, you’ll have more trouble making your case. If you need help negotiating with your creditors or managing your debt, you may want to call a nonprofit credit counseling organization, such as the Consumer Credit Counseling Service (CCCS). For further information on CCCS, call (800) 388-CCCS.
Caution: If your creditor agrees to let you skip payments or pay reduced amounts, honor the terms of your agreement, and keep in close contact with your creditor’s representative. Otherwise, your good credit may be ruined.
Discontinue discretionary expenses
You probably pay for a lot of things you don’t really need. For instance, think about canceling magazine subscriptions, extra phone services, credit cards you don’t use that have an annual fee, health club memberships (if possible without incurring a large cancellation fee), auto club memberships, cable television, and Internet service (although this can help you find a job). You may even save a few dollars a month by switching banks if you currently pay monthly checking fees. Every little bit helps.
Tip: If you’re billed annually for some of these things, you won’t save any money unless you cancel them at renewal because you won’t ordinarily get a refund.
Limit long-distance calls
If your long-distance bills are high, put yourself on a phone budget. Vow to spend no more than a certain amount (say $25 a month) on long-distance. To keep track of your calls, keep a notebook next to your phone so that you can easily see when you’ve reached your limit.
Strategies to consider if you have more time to prepare
Often you lose your job with little warning. However, if you’re being laid off or plan to quit your job, you may have time to save money for unemployment by using the following strategies.
Establish a home equity line of credit
If you have enough time, consider establishing a home equity line of credit, if you have enough equity in your house (20 percent is often the minimum), and if you can find a bank that will loan you money without charging you closing costs. With a home equity line of credit, you’ll pay interest only on the portion you use. However, the bank may charge you an annual fee or require that you take a certain draw on the line up front. You may even be able to use the line to pay off credit cards or loans that carry a higher interest rate, and consolidate your debt. You’ll still have to make a monthly payment, however, so make sure you’ll be able to afford it before you put your house on the line. In addition, beware when lenders claim that your home equity line of credit will be tax deductible. Although this may be true in many cases, you should consult your tax advisor to find out whether it will be true in your case.
Caution: Use caution when using your house as a debt management tool. If you can’t pay your loan back, you may lose your house.
Reduce contributions to retirement or education funds
Once you know you are going to lose your job, stop contributing to any savings plans that you’ll have trouble accessing, or that aren’t necessary. These include retirement funds, education funds, and Christmas club accounts.
Decrease your withholding
Consider increasing your withholding allowances to reduce the amount that is taken out of your paycheck. Deposit this extra money in a savings account. Of course, be careful that you don’t claim more allowances than you are entitled to. When you get a new job, you should look at your tax liability for the year. It’s possible at that time that you’ll have to increase your withholding to make up the difference.
Plan a financial strategy
Once you’ve mapped out your priorities and drafted a bare-bones budget, you’re ready to come up with your own six-month financial strategy. After you’ve formulated your own strategy, post it somewhere (maybe on the refrigerator) where you can use it everyday to chart your progress