If I Might Lose My Job Should I Pay off Debt or Save the Money?
Generally, it is a better idea to pay off your debt rather than save your money. You are usually paying more in interest than you would get on the money in your savings account. However, if your income is at risk, it is better to stock away as much cash as you possibly can to prepare for the event. There a few other times when you should save before paying off your debt. You should focus on building your emergency fund at the same time you widen your job search. It is important to set up a bare bones budget and begin living on it so you can build your savings even more.
With some jobs, you may qualify for unemployment or a severance package, especially if you were let go through no fault of your own. However, if you were a contract employee, you may simply not have any work at the end of the contract. It is important to think ahead if you find yourself working for a year contract and have a plan in place in case the contract does not renew. You should start looking for a new job several months before your contract runs outs.
If you are single or the sole breadwinner in your family, you need to have a solid plan in place to help you get through any times when you are in between contracts. If the industry you work hire primarily contract workers, then you can handle it similar to a job that pays you commission. You need to set aside money each month to cover the time you are in between contracts or the times when work might be more slow. Planning ahead now and saving money in a fund for those times can help takeaway some of the stress.
If you have to move with every contract, you should also set aside money to cover the cost of moving.
You should also think about how you are going to continue to pay for health insurance when you are not employed. If you do not have coverage, you will pay a fine for each family member that is not covered. Cobra is an option, but it is often very expensive. You may want to look into independent health insurance or insurance through the exchanges to keep yourself covered.
If you may be out of work for sometime due to having a child or another illness, you can do the same thing to prepare for the situation. In the time up to your scheduled time off set aside extra money to cover the amount that you would normally be making Many employers make you take a few weeks off without pay once your sick days and vacation days have run out. Plan how much that will be and then save enough to cover those paychecks.
When you set up a bare bones budget, it means that you cut all unnecessary spending from the budget. This means television, eating out, new clothing new cars, entertainment costs. Strip back as much spending as you can and put it into savings. This should be temporary, but it can make a big difference in how long you can survive without work. It is important to keep you phone on, but you can cut back to a cheaper phone. The Internet can help you look for new work, but if things are really tight, you can use the library.
You should also look at your grocery budget to see if you cannot save even more money there by changing the types of food that you buy.
Once you find a new job, you will need to rebuild your emergency fund, and then you should focus on getting out of debt as quickly as possible. Although you can relax your budget a little bit when you have steady work again, it’s a great time to stay focused, because you will not want to be in that situation again. See what changes you can keep so that you can reach your other financial goals more quickly and build a good emergency fund of a year’s worth of expenses.
It can be discouraging to find yourself in this situation. However, it is important to keep a positive attitude as you continue to look for work. If you need help, you can ask for it. A temporary solution may involve moving back in with your parents while you look for work. Be sure that you are open to all options so that you do not put yourself back into debt in this situation, especially if you continue to have contract work.