How to Prepare for Unemployment

Trisha Miller
Reading Time: 6 minutes

Let’s be honest, unemployment usually sneaks up on us. Most of us don’t know that we’re going to be laid off or let go from a job. This is why it’s so important to prepare in advance, even if you feel secure in your current position. How do you prepare for losing your job? Although it may feel discouraging when it happens to you, you can truly make the best of your situation. Use this time to re-work your finances and your goals, work on some new skills for your resume, re-work your resume entirely, and really fine tune your job search. In addition, you can use this time as a learning experience for the future. This way, if this ever happens (or maybe happens again), you’ll know exactly what to do.

What Do I Need to Know About Unemployment Benefits?

Every state has their own rules and regulations when it comes to unemployment benefits. So, of course, the first thing you’ll need to think about is if you really even need unemployment benefits. If you’re able to provide yourself with enough income to get by, then it might not make sense for you to take out unemployment benefits. The reason for this is the fact that unemployment benefits don’t last forever. Each individual has a quota of benefits that they can max out. Again, this may be different depending on your situation and your state. However, once your benefits are maxed out you won’t be able to take advantage of them again for some time. So, they should be used wisely.

Another piece to the benefit puzzle, is the fact that in most cases you will need to prove that you’re looking for a job in order to receive benefits. You’ll have to be actively applying to jobs and reporting that to your local unemployment office. This will take up some time and it requires that you know what types of jobs you’re willing to take.

There are also certain cases that will not be eligible for unemployment benefits. Many states will not issue benefits if you willingly chose to quit your job. So, that’s something important to consider. If you’re feeling like you can’t take your job anymore, it’s probably time to start looking for a new one while you’re still employed.

Should I Use My Credit Card While Unemployed?

Having limited income from unemployment benefits and a depleting savings account is scary. It’s tempting to supplement your income with a credit card in order to keep up with your finances. Although, choosing that path can lead you down a road that is hard to escape from later. All of your current financial choices will follow you and may strain your future self once you have found a job. You don’t want to put yourself into more debt than you can realistically pay off down the line.

The first thing you should do is re-evaluate your finances. Try to re-work your financial plan in order to make it work for your current financial situation. Cancel any expendable charges that are not necessities during this time. This may free up some extra income that you can use for the things you need the most.

Of course, desperate times call for desperate measures. You may have already cut your budget down. You’re not finding any additional areas that can be cut and you’re still coming up a bit short. You might be forced to use all of your available resources, including a credit card. If that’s the case, then you should know when to use your credit card and when not to.

First, you should understand exactly how your credit card works. How much interest are you being charged? When do you have to make a payment? Are there extra fees for cash advances? These are the small details that can make a huge difference when you’re scraping cash together to pay the bills. You’ll need to know exactly how using your credit card is going to affect your credit, especially if you think there’s a possibility you might max out your limit. Call your bank and discuss these details and keep them in the loop if you’re having trouble making payments on time. Communication can save you from some unnecessary dings to your credit while you’re unemployed.

Now, you can make an informed decision on the best circumstances for actually using your credit card. Credit cards should be used to supplement your income, not sustain it. Use your credit card for small purchases, not the largest ones. Remember, you’ll have to pay all of this money back plus some interest. It may be tempting to charge larger purchases to the card and save your money for other things, but it will come back to get you at a vulnerable time when just started a new job, your benefits have ended, and you’re trying to make ends meet.

How does not paying back credit card debt affect your credit? Find out at our credit score resource and learning center.

Will My Retirement Funds Help Me While Unemployed?

What happens when you haven’t found a job and your unemployment benefits run out? Or perhaps you’ve had an emergency situation that requires more money than you have to offer. These are situations in which you might start thinking about removing some savings from your retirement fund. Yet, similarly to your credit card, removing retirement funds from your account may make things difficult for you later on.

The first, and move obvious point to consider is, “How will this affect my future?”. Removing funds from your retirement account means that you either won’t have that money when you retire or you’re going to have to work extra hard to make up the difference. Either of those scenarios is not ideal, but again, you might have no choice. So, here’s what you need to know.

It’s very common for states to charge fees and taxes upon early withdrawal from your retirement account, especially if you take money from your 401(k). This differ greatly, so you’ll want to do some research at what kind of charges you could be facing. In addition, federal law regularly charges a ten percent taxation on all early withdrawals from retirement accounts. Although, there are some situations that don’t apply. If you’re taking money out of your account for a medical emergency or home repair, you might not be subject to additional fees. However, you’ll usually still have to pay the charges associated with your state’s regulations.

Check with the bank holding your account to make sure you don’t have any additional fees, but commonly once you’ve already incurred the regular fees and you have the money deposited into your account you should be good to go.

How Can I Prepare for My Next Job?

I mentioned earlier that if you want to take advantage of unemployment benefits you’ll need to know exactly what kind of job you’re looking for. Now, of course, not everyone knows exactly what their dream job will look like. In addition, you may feel pressured to take a job that will get you by until you have a little bit more financial wiggle room that will allow you to find something closer to your dream job. However, if you have the means and an idea of what field you might be interested in, unemployment is actually a fantastic time to re-evaluate your career path.

Spend some time looking around at different jobs and possible career fields. Research is always a great first step towards finding something that works for you. Find out what kind of skills, experience, and schooling they’re looking for. Jump around to related jobs and fields. Search many different job forums. Engage with individuals who work in those fields. You want to get an in depth look at what that career looks like and if you feel like it’s the right fit for you. Don’t be discouraged if something doesn’t jump out at you right away. It’ll take some time and self examination. You might have to try several things before you find one that sticks.

When you have some free time in between job searching and perfecting your resume, I highly suggest working on some of the skills you discovered that will benefit your choice in career. This could be something as simple as working on your communication skills, written skills, or presentation skills. It could also be much more focused if you’re planning on working in a specialized field. Take a class. It doesn’t have to be a class at the university level (although that would be highly beneficial) if that doesn’t suit your timeline and budget. It can be a community class, small weekend seminar, or free online course. It’s the drive for self improvement that matters. Employers will be impressed that you took the initiative and didn’t just let a job come to you. You decided to take charge and improve yourself as an employee while you had the time.

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