10 Helpful Tips to Cope With a Loss of Income Streams
Times can be unstable and unpredictable. An illness can strike anytime and rob you of the opportunity to earn. Sometimes family responsibilities come in the way of work. Children can be a priority at certain intervals of time. The economy too, can be a reason for losing your job.
The 2020 Covid-19 pandemic changed the face of the Earth. Unemployment, salary cuts, and business losses became common in the first quarter of the year, leaving people to handle its repercussions perhaps for years to come. This is why it is important to know of ways that can help you handle moments of extreme financial crunch, so you and your loved ones do not suffer. Here are 10 helpful tips for coping with loss of income streams.
- Assess your savings
- Make a new budget
- Withdraw from suitable accounts
- File for unemployment benefits
- Get insurance
- Look for a side hustle
- Make a plan
- Roll over your employer’s retirement account
- Do not lose hope
- Talk to a financial advisor
You may have lost your income, but you may be able to survive for sometime on your savings and emergency fund. Revisit all your accounts, investments, assets, and debts, and understand your current net worth. Many people live under a false sense of security without knowing the worth of their investments. Make sure you know where you stand. Once you have a clear picture of your finances, you can move to the next step.
The first reaction from most people is of panic when they find themselves out of a job. But panic can only worsen the situation. Instead, try to make a new budget. Cut out expenditure that is no longer a priority. This may mean that you have to make some tough decisions. However, letting go of extravagant lifestyle choices and sticking to a minimalistic routine can significantly reduce your expenses. Make sure that you come up with a new budget at the earliest, so you can streamline your expenses accordingly.
Look at accounts that can be liquidated to attain more money at hand. Most accounts would come with a withdrawal penalty, and instruments like a 401(k) account may also add to your taxable income, but this could be your only option.
Your second choice could be to take a personal loan or credit. However, this too will come with its fair share of interest. Try to talk to creditors. If you have a favorable credit score, you will be able to get a loan with an affordable rate of interest. Once you regain employment, you can pay this off with ease.
If you do not have enough funds and do not want to go down the loan route, you could file for unemployment benefits. These benefits are available for 26 weeks to half a year after you lose your job and offer up to 50% of your salary. This may not be as good as your previous income but can keep you afloat till you land back on your feet again.
Life and health insurance can offer you and your family with financial security in unexpected situations. While life insurance may only give maturity or death benefits, health insurance can be of great help if you lose your primary source of income. It can provide you with coverage if you suffer from an ailment and aid in keeping your savings intact in dire times. Most people stick to their employer provided health insurance, which can cause severe problems if you quit or lose your job. This is why it is essential to invest in a wholesome plan outside of your office, so your plan continues to stay active regardless of your employment status. However, if you do stick to your employer provided plan, you can consider the Consolidated Omnibus Budget Reconciliation Act (COBRA) to continue your employer health insurance benefits for 18 to 36 months. But you must know that this can only provide relief for a limited period of time. It can also be more expensive than an individual health plan that you can buy on your own.
You can take up a part-time job or online work. This may not pay you as much money but can still aid in paying debts or covering essential expenses. There are many opportunities that you can find on the internet, such as writing blogs, designing, social media management, marketing, and more. Find your niche and try to start afresh with a part-time job.
Besides this, if you own property, you can also use it to sub-let and earn some extra cash.
Even with adequate savings or emergency funds in place, you need to have a withdrawal plan. It is hard to predict how long you will have to live without an income. Therefore, it is advisable to be prudent with your money. No matter how much money you have saved up, it is essential to only use it as needed. Many people over indulge, assuming that they will get a new job soon enough. However, there is no guarantee of a new stream of income. It may take days, months, or years for people to bounce back. So, it is vital to not run out of your finances.
Leaving your employer provided retirement account with your previous office could result in unnecessary management fees. Moreover, since you would no longer be contributing to the account, it would be a waste to have it lie idle. Cashing out on such plans will incur a 10% penalty if you are below the age of 55 years. Instead, you can roll it over to an individual retirement account (IRA). This will allow you to keep contributing to the plan, defer taxes, and perhaps use the money for various expenses as per your needs.
Unemployment can be demotivating and disheartening. But the sooner you find yourself work, the better you would be both financially and mentally. Try to look for opportunities. While money is a crucial factor, be realistic and choose the best option in front of you. If you have lost your job because of a recession or an unstable market, you may have to settle for a lower paying job. Be open to these changes and make the best of what you get.
Before you take any drastic measures, talk to a professional financial advisor. An advisor can help you move around your investments and gain the most of a given situation. The decision to roll over an account or liquidate your investments also needs to be discussed with an expert. This will allow you to make better decisions.
To sum it up
It can be challenging to cope with a loss of income stream. But if you allow time and take cautious budgetary decisions, you can deal with this unexpected situation without too many hassles. What matters more is to analyze your circumstances carefully and not act at the spur of the moment under emotions.
If you are unable to handle the situation on your own, you can get in touch with Financial Advisors too.