No matter how secure you think your job is, how old you are, or how long you have been in your current position you should have a contingency plan for job loss. Job loss is generally seen as a negative and that is because most people aren’t prepared. Living week to week, paying large debts and maintaining an expensive lifestyle, if the income stops it is a disaster.
However, if you plan for a job loss you are not encouraging it to happen. Instead you can feel sure that you and your family are secure no matter what happens and if you do lose your job in the future, you can look at it as an opportunity to move onto something better, rather than a desperate scramble to get back into the workforce and hope that you can find some of the good paying jobs out there.
To make sure your contingency plans are in place in case of job loss, look into how you could implement the following strategies:
Income protection insurance.
This will be a small premium to pay for a lot of peace of mind because you can often cover yourself and your income against job loss, as well against sickness or injury which prevents you from returning to work, or death. If you’re sick or injured an income insurance protection policy will usually pay out 75% of your income and if you die your family will receive a lump sum payment. just make sure that your income protection insurance policy specifically covered unemployment and will be able to cover your monthly bills and expenses as some policies will simply waive the premiums if you are unemployed, so you remain covered.
Mortgage protection insurance.
The reality is that if a loan to value ratio is more than 80% there is a 1% chance of mortgage default, on an LVR of 90% the likelihood is 2.5%. As a result, on loans with an LVR over 80% you will pay lenders mortgage insurance to protect the lender, but make sure you are protected too. Your lender may require you to cover your repayments or you can organize the cover yourself.
A second income.
Having a part time job to supplement your income or to act as income if you lose your primary job can help in the short term. However, keep in mind that as your second source of income you will not be eligible for a tax free threshold and so will be taxed at a higher rate. This could benefit you if you have a lot of deductions such as investment properties.
The suggested amount of an emergency savings fund in case of job loss is three to six months worth of expenses. Even if you’re not there yet the sooner you start the better prepared you will be if the worst happens.
Live on one income.
This is a good habit to get into to ensure you and your family don’t live beyond your means and can be a great way to kick-start your savings by depositing one whole salary into a high interest account. Or you can use your second income to reduce bad debts such as credit cards and curb your outgoing expenses.
Curb your outgoing expenses.
The fewer bills you have to worry about if you lose your job, the easier the whole process will be. Therefore cut down your outgoing expenses as much as possible to ensure you are not living week to week. Pay down your credit cards to minimize bills and leave the credit line open because you can’t use the card if it’s maxed out.
Know your payout entitlements.
Without arousing suspicion at work, take a look at your contract and your company’s policy on job loss payouts. What is the difference if you quit, are fired or made redundant? You may be able to pursue compensation through state or federal laws or through your union.
If you lose your job you can apply for government assistance for your rent or mortgage and family expenses. There is often a limit based on the remaining household income, and you must prove you are looking for work to be eligible for some assistance.
Your retirement fund.
If you are over 55 you may be able to access part of your retirement fund in a transition to retirement application. You can also apply for a lump sum payment on compassionate grounds or if you are under severe financial hardship to help pay significant bills such as your mortgage.
Feeling prepared and knowing the facts can help you remain secure and confident in your role at work, and show your family that even if the worst happens you can be prepared and you can not only survive, but excel.
Alban is a personal finance writer at Home Loan Finder, where he helps people to choose the best home loans