Tag Archives: Finance

Getting Laid Off: Ten Things You Should Do Before This Happens

The last four years have really taken a toll on the American economy as a result; the Great Recession has catapulted unemployment to an all-time high.  Now more than ever, the likelihood of being laid off is more realistic than ever before.  There are several adjustments that will have to be made.  Even though we can’t predict the future or prevent a lay-off, we can be proactive and develop a strategy to ensure a smooth exit if and when the time comes.

Below is a list of the ten things you should do before getting laid off:

1.  Use your Insurance

The cost of healthcare has skyrocketed in the last five years.  Being caught without health insurance can cause a potential financial set-back.  However you can minimize the damage by using your health insurance while it’s still available.  It’s smart to get a thorough health check-up (dental, medical and vision).

2.  Search for Alternative Insurance

After your employment ends, so will your insurance, however your employer will offer you the opportunity to purchase COBRA (Consolidated Omnibus Budget Reconciliation Act) insurance.  This insurance is a continuation of your group insurance, where you will continue to pay your normal monthly premiums, but in addition to your normal premiums you will be required to pay your employer’s part of the insurance premiums as well.  COBRA can get very expensive and will be available to you for only 18 months following your layoff.  If you are healthy and don’t have any pre-existing conditions, it would be wise to search for a cheaper health insurance such as a High Deductible Health Care Plan (HDHP) which covers only catastrophic illnesses and is tied to an Health Savings Account (HSA), which is tax deductible.

3. Make a list of key contacts

It’s important to ensure that you have the names and phone numbers of key people at your current job before you leave such as your supervisor, HR and Benefits just in case you encounter a problem after you’ve been laid off.  If you will be receiving a severance package it is imperative that you review your benefits and make sure that other pertinent information is spelled out in writing prior to your leaving.  If after leaving you still have questions or run into any unforeseen problems, having these key contacts at your fingertips will come in handy.

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Life Insurance 101: The DIME Method

Life insurance is one of those topics that can often be taboo.  Why?  Because nobody likes to talk or think about death but it’s the one thing we can’t avoid.  As a result it is very important that we plan for the inevitable by purchasing some form of life insurance.  It’s just smart and gives you and your loved ones peace of mind.

Purpose of Life Insurance

The primary purpose of life insurance is for income protection in the case of premature death.  If you’re the sole or main provider for your family or someone depends on your income for survival, then you should definitely have insurance.  If there is no need for a death benefit there is no need for life insurance.  For example, if you are single, have no kids.

The amount needed depends on your living situation as well as other pertinent details…it can get complicated.  However, a great way you can ensure that you have the basics covered is by using the DIME method.

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Borrowing from your 401(k): Advantages and Disadvantages

With today’s companies getting rid of pensions 401(k)s have become one of the primary ways, for most individuals, to save for retirement.

Most 401(k)s are pretty flexible in that in they allow you to borrow against them.  But before you run off and cash out your nest egg, there are some advantages and disadvantages that you should be aware of:

Advantages

  • You can borrow up to $50,000 or ½ of your plan balance.
  • The loan payment is usually automatically withdrawn from your paycheck, which makes it very easy to pay back.
  •  No credit check is required since you’re actually borrowing from yourself.  This works out well if you have poor credit.
  • You’ll pay a pretty competitive rate on the loan but the good thing is that you will be paying this back to yourself.
  • Little to no administration fees involved.

Disadvantages

  • You’re borrowing from future money reserved for retirement which makes it harder for your money to grow.  The longer your money is outstanding from your 401(k) plan the longer you forgo all potential investment gains from all borrowed funds for the duration of your 401(k) loan.
  • If for some reason you are not able to repay the loan back, such as the loss of a job, then you will trigger a tax bill (federal/state taxes) as well as pay an additional 10% penalty for early distribution.

You should be cautious when borrowing from your 401(k) as it defeats the purpose of saving for retirement.  Only borrow from your plan if it is an emergency and you’ve exhausted all other avenues.