Your Financial First Aid Kit: Handling Unemployment

Job loss: Though it’s likely to happen to everyone at some point, periods of unemployment can be some of the most difficult, anxiety-inducing financial moments many of us will ever encounter. For most Americans, the majority of income each year comes from earned wages and salary. Without a strong plan in place, losing that income can be disastrous.

Unemployment can be damaging for both your financial and mental wellbeing. Research shows that job loss is heavily linked to greater rates of depression, anxiety, and loss of life satisfaction – in part, due to the financial toll it can wreak. And while we may think we’re in control of our employment status, the COVID-19 pandemic – and the skyrocketing rates of unemployment it caused – demonstrate that job loss is often unexpected.

Arbor has been writing a series on the importance of preparing for the worst by building a strong financial first aid kit. Due to pandemic-related job loss, over 30% of Americans had difficulty covering their typical expenses, and 20% couldn’t pay their rent. Preparing a financial first aid kit means you’ll be ready to handle the worst – even unexpected job loss.

Below, we’ll outline a few of the tools you should keep in your financial first aid kit to cope with sudden unemployment.

The Expense: Unemployment

Whether you quit your job by choice or find yourself in an unexpected employment situation, you’re likely to face at least one period of unemployment throughout your life. Young workers are the most likely to face sudden unemployment, but job loss can happen for any number of reasons – including company relocation, mergers and acquisitions, and technological advancements that render certain jobs null.

Conventional wisdom suggests certain knowledge workers don’t face unemployment, but think again: Researchers have found that those with college degrees are just as likely to face long-term unemployment as those with only high school diplomas. And job loss is not only expensive, it’s difficult on your mental health: Unemployed individuals are nearly 24% more likely to face depression, anxiety, and other mental illnesses. Having a strong financial plan in place to deal with periods of unemployment can take away from the mental stress of job loss.

The Tools: Financial Advisor and Financial Coach

One important step towards having a solid plan for periods of unemployment: Finding a trusted Financial Advisor and/or Financial Coach.

While they sound similar, there’s an important difference between these roles: A Financial Coach can help you establish healthy personal finance habits and give you the knowledge and skills you need to manage money, while a Financial Advisor can help you build wealth for the present and future, prepare for retirement, and establish comprehensive financial goals.

When it comes to job loss, a Financial Coach can advise you as you manage the day-to-day expenses of unemployment, while a Financial Advisor can help you mitigate the long-term consequences of job loss on your retirement and future plans. It’s a great idea to have both – and here at Arbor, our Financial Advisors are also Coaches, so you get access to both important skillsets. That means you’ll get help assessing your spending, planning your retirement goals, and building an emergency fund, among other things.

The Tools: Unemployment Benefits

Of course, one of the best ways to supplement your lost income during periods of unemployment is to apply for federal and state unemployment benefits. Your individual state website will offer guides to what type of unemployment payments you’re eligible for, and some states even offer special programs for unemployed educators, veterans, and other groups.

While you look for stopgap funding during a pause in income, make sure to steer clear of companies or groups that take advantage of the unemployed. Predatory lenders with sky-high interest rates can destroy your credit score in the long term.

The Tools: Payment Moratoriums

While experiencing a loss in income, you can lower or even pause your monthly costs on many things, from credit cards to car loans. For those who own a home, many states offer ongoing programs to help homeowners with mortgage payments during the pandemic, and renters can communicate with their landlords or reach out to local organizations for help during periods of unemployment. It’s smart to reach out to your utility companies and inquire about their leniency policies as well – many have created new policies to respond to distress caused by the pandemic.

In many cases, other debt can be avoided in times of unemployment as well. Some lenders and credit card issuers are allowing borrowers to suspend loan payments during the pandemic, and federal student loan payments are still frozen until May 1.