The Dos and Don’ts of Living on Unemployment Benefits

It’s no secret that the U.S job market is currently about as active as a week-dead possum and not much prettier. Unless you’ve been living in a cave, you almost certainly know several people who’ve been forced to apply for unemployment benefits – and that’s if you haven’t been forced down this road yourself. There are way too many tales of people who’ve been looking for work for months, going to interview after interview while their bills turn an increasingly hostile shade of red.

Unemployment benefits used to be seen, at least in certain circles, as a crutch for people who can’t really make it in the real world. By now, it’s hopefully clear that the majority of recipients aren’t necessarily greedy, stupid, lazy, or irresponsible – and that this kind of social safety net is essential to the nation’s prosperity.

Things are getting better, but only slowly, and until a vaccine or other solution to corona becomes available, times will continue to be tough. Political strife isn’t helping, meaning that many people will have to find their own way to improve their lot while living on inadequate unemployment benefits. This article will help you navigate the hazards, locate opportunities you may not have thought of, and hopefully allow you to get back to work without a crushing burden of debt.

Living on Less

Many people either underestimated how long the coronacrisis would last or overestimated how long their savings, unemployment benefits, and credit cards could keep them afloat. They’re all sorry now – cutting down on your expenses is a must when you’re on unemployment. The sooner you begin, the better. Even many families who seem to be rich are really living paycheck to paycheck and simply can’t support their lifestyle for long on unemployment benefits.

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That’s not to say that starting to remove luxuries from your life is easy. Enjoyable activities like eating out can help you cope with the stress of being laid off, as well as showing others (including your family) that everything is still more or less okay. It’s essential that you get your house in order, though, so don’t delay.

Taking Stock

The first step towards regaining your financial equilibrium is to go through your receipts and credit card statements to find out exactly how much you’re spending, and on what. The results may surprise you: most people spend a lot more than they realize on things that aren’t truly essential. You may even find a couple of subscriptions and memberships that you no longer use but are still paying for, representing an immediate and pain-free saving.

Once you’ve tallied up all the numbers, you can divide them into categories (housing, transport, kids, etc.) as well as by how important each item is to you (necessary, convenient, or extravagant). Now, you can start on the tough part: figuring out what you can do without, or at least replace with a cheaper option. This isn’t always a bad thing; how often did you use to entertain yourself by simply taking a walk in the park, spending time with friends without going out, or practicing that hobby you’ve always wanted to get better at?

Remember, too, that being without a job is actually a financial advantage in some ways. You no longer have to spend as much on commuting, you can save money on things like regular hair appointments, and you have more time available to do chores like cooking and gardening rather than paying someone else to do them for you.

Consider Moving

It’s no secret that where you live has an enormous effect on your monthly expenditure, a fact that the coronavirus has only highlighted more. This applies to different states as well as the contrast between urban and rural areas, but even moving to a smaller home or one in a different part of the city can take a lot of financial pressure off you.

You have to be diligent about doing the math, though, as well as reading your rental contract very carefully. Having a good relationship with your landlord will come in handy. With most leases, you’ll have to pay one or two months’ rent just for moving out early; that’s in addition to your 30-day notice period. This is to compensate the owner for the loss of rental income, but may be waived if you can find someone to take over the apartment at the same rent. Subletting, if allowed, can be a good option too.

Since this is a drastic step (though also one that can save you a lot of money), it may be worthwhile to take an honest look at how likely you are to find another job in the next few months. Looking at the want ads in your industry will give you an idea of how many companies are hiring.

Ask for Relief on Major Bills

Utility, credit card, and mortgage companies aren’t all that happy with how much less cash they’re currently receiving each month, but they’re also realistic about the current situation. In many cases, you can ask them to freeze your bills for a few months (the amount owed will continue to go up, but you won’t be charged late payment fees or be referred to a debt collection agency). This can help to stretch that tiny unemployment benefits check much further and prevents major harm to your credit rating besides.

Boosting Your Income

Earning more while paying less has always been good advice, so why isn’t everyone doing just that? Obviously, this is easier said than done, especially in times of financial strain.

Relying on unemployment benefits doesn’t have to mean sitting back and hoping for the best, however. If you take action, you’re certain to end up in a better position than somebody who remains idle.

Apply for Unemployment Benefits as Soon as Possible

Perhaps the various government assistance offices could do with hiring a few people who are currently on unemployment benefits: most states have a huge backlog of applications, and some have (temporarily) stopped accepting them altogether. Even before the mass layoffs we’ve been seeing recently, it typically took up to three weeks to start receiving checks.

In other words, it’s an excellent idea to apply as soon as your hours are cut, you’re placed on furlough, or you’re made redundant (you will typically not qualify if you were fired due to misconduct), even if you expect to have a new job soon. It’s also a good idea to make sure you understand your state’s particular requirements and procedures – for one thing, self-employed individuals can now also apply for government aid under the Pandemic Unemployment Assistance program.

Also take the time to check that you’ve filled out the form correctly and that all information is correct. If, for instance, an official is unable to contact your former employer by telephone because that office has closed down, your application will be delayed even further. Finally, note that unemployment benefits are typically taxable just like most other forms of income.

Look for Types of Support Besides Unemployment Benefits

While the federal government, in partnership with those of each state, is the main source of unemployment benefits, don’t forget to ask about other programs you may qualify for due to a low income level and other factors. These include food stamps and even help with paying phone and utility bills.

You can look beyond the state, local and federal government for help, too: a variety of religious and other nonprofits have instituted charitable programs. Even lawyers are volunteering to help the public with issues like tenants’ rights.

Pennies from Heaven

While there’s nothing wrong with relying on the kindness of strangers, most people prefer to pay their own way when possible. Thankfully, there is a wide range of side hustles that can supplement your unemployment benefits, some of which don’t require any training, experience, or special equipment.

The trouble is, of course, that with about 27 million people also collecting unemployment benefits, all the low-hanging fruit and easy pickings are already gone. You may have to show extra initiative, capitalize on your special skills, and be willing to get creative if you want to thrive in this competitive environment. If you become successful, you may also find that you are no longer eligible for unemployment benefits, even if you’re earning less than half of what you did in your former job.

Thinking Ahead

Even if they are extended and increased to keep pace with the distress so many people are currently facing, unemployment benefits will always be intended as a stopgap measure and not a long-term solution. Eventually, you’re expected to land on your feet again. Once the economy normalizes, you’ll want to be in the best position possible, especially when it comes to looking for a job.

Stay Employable While Unemployed

Historically, about 20% of unemployed Americans are called “long-term”, meaning those who’ve been out of work (without wanting to) for longer than 27 weeks. One reason for this can be having an outdated or too specialized skill set that no companies are looking for; another is that too many people are chasing after too few available jobs.

Since the current job market is about as competitive and chaotic as a demolition derby, you have to do what you can to stand out from the crowd. Applying for as many jobs as you’re suited to will obviously help you to get off unemployment benefits as quickly as possible. This can get discouraging, of course, so you may want to commit to spending at least an hour a day doing nothing but this.

At the same time, keep up with old contacts – you may just be offered an interview without even having to apply. This can get expensive, so looking into free calling services will save you some cash.

While unemployed, you can also use your new-found free time to upskill yourself. You often don’t need to spend any of your scarce money on this, either: companies like Coursera, FutureLearn as well as universities like MIT and Harvard provide free course materials. You won’t get academic credit for these in most cases, but you may as well use them to flesh out your resume. In any case, an increasing number of companies these days are more interested in what you can do than what your diplomas say.

Look for Temporary Work

Among so many other things, the coronavirus pandemic has taught us that a flexible workforce, including one containing a large number of temps, contractors and freelancers, can be a huge advantage for a company. These jobs may or may not be a suitable replacement for your career, but they certainly look better on a resume than sitting at home – even if you take a volunteering opportunity.

Ideally, you’ll find a position lasting a few weeks or months in your chosen field, but remember that online contract work and seasonal jobs around Christmas are also options. The downside of this is that your unemployment benefits will stop (or be lowered, if your temp job pays less than unemployment) for the duration of this kind of employment. Normally, you’ll be able to apply once again as soon as the work ends, but this is a complicated issue that varies greatly from one state to another.

Use Credit Sparingly

It’s often tempting to use loans as a substitute for income. The thing about living on overdraft, however, is that you can only do it for so long and only when you can depend on things getting better soon. This usually makes increasing your level of debt a bad idea when you’re living on employment benefits. Even once you’ve managed to pay back all the money you owe, your credit score will most likely have taken a massive hit it will require years to recover from.

There are, of course, exceptions. If your only options are to use a credit card or go without groceries, or take out a personal loan or lose your house, your choice is obvious. If you’re forced into this situation, make sure you get the best interest rate available to you; websites that allow you to search through multiple options and compare them side by side are useful for this.

Cash out Your IRA or 401(k)…But Only as a Last Resort

Retirement accounts should not be thought of as general-purpose financial safety cushions: that is not what they’re intended for nor are they designed that way. Due to recent changes in the law, people who’ve been negatively affected by the coronavirus pandemic may withdraw up to $100,000 without paying a penalty fee (which would otherwise run to 10%).

On the other hand, you’ll still have to pay taxes on your withdrawal. More importantly, withdrawing only $10,000 when you’re 30 years old can easily lead to a 401(k)’s eventual value dropping by more than a hundred thousand dollars. Unemployment is (hopefully and usually) a short-term problem – solving it by placing your long-term peace of mind in jeopardy may be unavoidable in some cases, but it’s certainly not the first thing you should try.

Good Times and Bad

One of the best qualities of Americans is their optimism. Even if something seems hard or impossible – going to the moon, rebuilding Europe after WWII, or inventing technologies that weren’t even thought about in other nations – Americans are often willing to try.

This can-do attitude has been a great boost to the country’s economic and social development. Unfortunately, grand, ambitious projects fail at least as often as they succeed. For every success story, there are many stories of individual companies crashing and burning, sometimes abysmally. There are lessons to be learned from each of these failures, but the most important thing to understand is this: good times never last, the unexpected happens more often than you think, and pride comes before a fall.

Nobody could have predicted, precisely, when a global pandemic would break out. Few people saw the credit crisis of 2008 coming. It seems that hurricanes are becoming more destructive, but there’s no way to tell whether one will huff, puff and blow your house down in the coming year. For all we know, a comet is on its way right now to send us all the way of the dinosaurs.

The fact that we can’t always predict what’s coming next doesn’t change the inevitability of bad things happening. You can’t even buy insurance against many of the possibilities. You’re not helpless, though:

By saving money every month, no matter how little, you insulate yourself from many shocks and make the rest much more bearable. When you invest it, your rainy-day fund grows faster than you may think. This is really the most reliable way to stretch your unemployment benefits when you need them and, in the longer term, the only assurance you have of a comfortable retirement. If you haven’t started saving and getting out of debt yet, start doing so as soon as you find another job – ProMoneySavings will provide you with all the help and advice you need.