Preparing Financially for a Furlough or Lay-off

By Jeff Hollenbeck, Chief Investment Officer, ACE Financial Advisors

It’s an unpleasant scenario to imagine, but the reality is that very few of us experience a linear, upward-trending income scale throughout the course of our working lives. For one reason or another, it’s likely that we experience at least one year of a drop in wage or salary (or several years of fluctuation) which requires us to be nimble and adaptive. Especially with today’s uncertainty surrounding the Coronavirus, the closing & re-opening of the economy, and other societal influences, it’s important to be prepared and set yourself up for success no matter what ‘curveball’ life has to throw at you.

If you anticipate a furlough or a decrease in income, here are some tips to help you manage without going broke or losing your quality of life.

Reassessing your Financial Plan:

Whether you are being furloughed, laid-off, or have a very secure position with the university, some basic housekeeping items everyone should review during these times are pretty basic ‘Financial Planning’ concepts…
Create a ‘Personal Balance Sheet’

Take inventory of where you’re at today.

Assets – Arrange from most liquid, to least liquid. Common examples include:

  • Cash Accounts (such as your Checking & Savings accounts)
  • Investment Accounts (both Retirement & Non-Retirement investments)
  • Real Estate (Primary Residence if you own your home)
  • Other Personal Property (such as Cars, Jewelry, Collectables, etc…)

Liabilities – Arrange from Highest Interest Rate to Lowest Interest Rate. Common examples include:

  • Credit Card Debt (the worst!). Try to NEVER carry a high balance over a month.
  • Student Loans
    • If you are furloughed or laid-off and have federal student loans that are owned by the Education Department, you are eligible for the six-month payment suspension and interest freeze. Contact your loan servicer if you are unsure whether your loans qualify.
  • Mortgages
    • Forbearance: Borrowers can request up to 180 days of forbearance. This means you can suspend monthly payments temporarily. If the loan is federally backed—and about 70% of mortgages in the U.S. are backed or insured by a federal agency—then the company that collects your payments is supposed to grant the suspension, according to the federal government’s stimulus law.

Create a Budget

There are a lot of ways to track your budget, from Excel Spreadsheets to online resources/apps (Mint is one I’m familiar with if you don’t mind linking your bank accounts & credit cards to the website)

Expenses tend to fall within these four categories:

  1. Fixed and Necessary
  2. Variable and Necessary
  3. Fixed and Unnecessary
  4. Variable and Unnecessary

The ‘Necessary’ quadrants come 1st and typically account for a little more than 50% of ones budget from what I’ve noticed. There’s not TOO much we can do to adjust or control these costs.

The ‘Fixed & Unnecessary’ don’t tend to be SIGNIFICANT, but are predictable amounts that come out every month.

The ‘Variable & Unnecessary’ category is where things tend to get “out of control” and where most focus should be place when it comes to tightening one’s budget.

Explore Filing for Unemployment

You are eligible if you are laid off or furloughed from your job.

People who are diagnosed with Covid-19, have a household member with the illness or are unable to go to work because of quarantines are also eligible, as are individuals who had to quit their jobs or are laid off because of the coronavirus.

In Case of a Shortfall

If the paycheck stops coming in, and the Checking & Savings Accounts are getting low because they’re being drawn down to cover expenses, here is a list of common options available in order of ‘Most Efficient’ to ‘Least Efficient’.

  1. Home Equity Line of Credit – Using the equity in your home is a tax-free way to access additional funds at a low interest rate. 
  2. Borrow from your 401(k) or 403(b)
    – I emphasize the term “Barrow” because there is a difference between taking a loan from your retirement plan and taking a ‘Distribution’. 
  3. Credit Cards should be used as a last resort due to the high interest rate and the impact on your credit score, but sometimes they are the best option for a short-term solution.

Consider Additional Income Avenues –
Temporary / Part-Time Work. Sell Unwanted Stuff Online

Even if you have plans to return to work, there are several ways you can bring in some additional money while you are furloughed or laid off.

  • Ride-sharing companies like Uber or Lyft offer flexible hours and human engagement (obviously you’ll want to proceed with caution and where mask & glove).
  • Labor & Economic Opportunities website works in hand with unemployment.
  • Employment websites – ZipRecruiter, Glass Door, or Indeed are some popular options.
  • Throw a garage sale or sell online.
  • E-Commerce website options include Facebooks ‘Market Place’, eBay, Craigslist.

Consider Alternatives – Retire!

I know a lot of MSU professors & employees who are MORE than capable of retiring from a financial perspective, but the idea can be daunting, and because they like their jobs and the people they work with, they decide to continue working as long as they can.

Now may be the time to realize what your next chapter looks like and transition out of the 9-to-5 world into the glory days of retirement. 

As you get your ‘ducks in a row’, think about your transition and work with a professional to help guide you along the way. 

Make sure you get input from a variety of sources and the opinion of more than one professional.

It’s easier said-than-done but try to stay positive during these times of uncertainty. Rely on the support of friends, families, and professional outlets so you don’t feel like you need to handle life’s obstacles alone. A “closed door” is often ‘opportunity in disguise’, so keep your eyes and mind open to whatever your next chapter brings!

Get more information

Watch the Replay

Personal Balance Spreadsheet

Personal Budget Worksheet