For many families, a job loss can put a significant financial and emotional strain on the entire household. Two-income, married couples may seem lucky when it comes to losing one income since they have a second earner to keep the family afloat when a spouse loses a job. But that second paycheck is often far less than the one that was lost.
"The Great Recession has seen a reversal of past trends in that husbands, rather than wives, have been more likely to be unemployed," says Heather Boushey, senior economist at the Center for American Progress. "While women's earnings are increasingly important to family well-being, many women are not yet in jobs that replace a man's earnings."
For the first time in decades unemployment has been concentrated among husbands rather than wives. A new report from the Center for American Progress found that in 2010, two-income, married couples with one spouse employed and one unemployed rose to 6.8 percent, higher than any time since 1979. The new reality: Many wives—and women more generally—are now the ones supporting families.
A job loss can be devastating to a family's finances. Your "Plan B" might be starting your own business, going back to school or training for a new career while looking for a new job. But you need to start with Plan A. Develop a sound financial strategy to help you through this difficult time. How do you begin?
File for unemployment benefits immediately.
If you are unemployed due to lack of work, are not self-employed and have worked more than a few weeks, you're likely eligible for unemployment insurance benefits. You can claim 26 weeks of regular unemployment benefits and in some states, like New York, up to 67 weeks of additional benefits through emergency unemployment compensation and extended benefits. Make sure to keep a record of your job-seeking activities while you're receiving unemployment benefits. If you are picked for an audit you must produce documents which prove you are seeking employment.
Know where you stand financially
If you have the luxury of some advance notice of an upcoming layoff or if you've just lost your job, make a list of all of your current expenses. "Identify some expenses that can be cut immediately. Then, use the money from those expenses being cut to boost savings and pay off some outstanding debt," says Greg McBride, senior financial analyst at Bankrate.com. "That will create additional room in the household budget."
Cut unnecessary expenses
But New York-based certified financial planner Stacy Francis says it is important to understand that all of the decisions you will be making in the next few weeks or months are short-term. "Track your spending for one month. Record what you pay right down to the newspaper, bagel and latte you grab on your way to an interview," Francis says. "Pinpoint where you are spending your money. Cut out expenses that are unnecessary. Then, record what you think your expenses should be next month."
Find new sources of income
Until you land a new job, you have to find new sources of income or cash. If you don't have an emergency fund of six to 12 months of living expenses, see if you can refinance your home. As long as you have equity in the home, good credit and a history of on-time payments with your mortgage company may make you a viable candidate for a line of credit. Or monetize your home by renting out the basement, second bedroom or a vacation home. Also, look for ways to readjust your investment portfolio. "Reposition you assets to a fund that pays income," Francis says. "Take dividends from mutual funds in cash."
Get temporary health insurance
Unemployment can hit couples hard not matter who has lost their job. "But when the higher earner — or earner that is more likely to be providing the family's health insurance — is out of work, the economic hardship is great," Boushey says. Apply for temporary health insurance through COBRA right away. Under COBRA, you, your spouse and dependents can continue to receive temporary health coverage through your former employer's plan at group rates. You have to pay the premium yourself, but you will be able to receive insurance for up to 18 months.
Don't use credit cards and don't hide from creditors
Explain your situation to your creditors. Many will be able and willing to work with you once they know your situation. Don't use your credit cards, but don't get rid of them. Loyalty is rewarded. About 15 percent of your credit score is based on the length of your credit history, and that includes the age of your oldest account as well as the average age of your accounts.
Do not raid your retirement savings
The rise in unemployment among married couples, particularly husbands, is having a big impact not only many families' current income and expenses, but also their long-term savings.
"Unemployment has grown most sharply among husbands in older couples," says Boushey, "leaving many Baby Boomer couples with the double whammy of falling retirement savings and limited job prospects."
Even still, do not see a job loss as an opportunity to raid your nest egg. If you take distribution from retirement funds as cash, not only will your unemployment benefits likely be reduced, you'll have to pay ordinary income taxes on any traditional 401(k) or IRA money.
If you're under age 59 1/2, you'll face a 10% penalty for taking an early distribution from a 401(k), 403(b), 457 plan or IRA account. That means that by taking a lump sum withdrawal, from a traditional 401(k) plan, your balance could be cut 30-40% or more. Bottom line: "Don't raid your retirement," says Bankrate's McBride. A job loss "may only be temporary, but retirement is inevitable and lasts a lot longer."
Perhaps most important for couples going through a job loss is to keep lines of communication open, particularly in the midst of a personal financial crisis. "One of the primary reasons for divorce is a job loss for a spouse," Francis says. "Continue to invest in your relationship and schedule weekly money dates to discuss the new financial situation that you are in." Work together to achieve the successful life that you both deserve.