How to manage your money while you're on furlough
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Update April 7, 2020: Several companies, including REI, TJX (the parent company of TJ Maxx and other brands), Nissan and Honda are furloughing thousands of workers as the economy continues to reel during the coronavirus pandemic.
Many workers could go without pay for months as the economy recovers its footing. In the meantime, how can furloughed workers manage their money?
While stores are closed, bills are still due. Furloughed workers may be able to negotiate with your landlord, mortgage company or other creditors.
Homeowners can benefit from a moratorium on foreclosures and evictions for mortgages backed by the Federal Housing Authority and by Fannie Mae and Freddie Mac. Some state and local governments have also taken action to waive payments for those with conventional mortgages.
Workers can write their creditors asking for delayed payment plans. The federal Office of Personnel Management provides sample letters to send creditors on its furlough guidance website. Before writing, first try speaking with creditors in person about your situation, the OPM suggests.
You may want to just cut back on expenses you can't negotiate. Things like your cable bill and dining out can be among the first cuts to make, said Monica Dwyer, vice president and wealth advisor for Harvest Financial Advisors.
Some auto insurance companies are offering paybacks on monthly premiums. Otherwise, to lower home and auto insurance premiums, you can ask for a higher deductible. However, if you experience a loss, you'll have to pay more.
Furloughed workers are eligible to receive expanded unemployment benefits under the Coronavirus Aid, Relief and Economic Security (CARES) Act, a recently passed $2 trillion stimulus package.
Furloughed workers may want to seek other gigs like food delivery, Dwyer said. You can also turn your old stuff into cash. Take the time off to sort through your possessions, like old clothes or appliances, and sell them off. You can sell items on social networks like Facebook and Nextdoor, or marketplaces like Poshmark and Craigslist. (Here's a list of side gigs that cost nothing to start.)
In an pinch, you can also draw on your retirement funds. You can withdraw contributions from a Roth individual retirement account tax-free and penalty-free. You can also borrow money from traditional individual retirement accounts, but you'll face a penalty if you don't return the money within 60 days. The CARES Act has also loosens the rules for withdrawing or borrowing against 401(k) accounts.
This should be an emergency option, like if you need the money to avoid getting evicted, Dwyer said. Be sure to talk with a financial professional to discuss the tax implications of withdrawing money from a retirement account.
If possible, avoid borrowing money against the value of your home, said Dwyer. Such loans can be risky and costly in terms of interest and fees. Also avoid products from potentially predatory lenders, like payday loans. Read all the fine print when borrowing money, Dwyer said.
"There can be really pertinent information in the fine print that we're not made aware of when we're taking out a loan," Dwyer said.
The optimal way to prepare for a downturn is to save three to six months of pay, Dwyer said. That can be difficult, but in an uncertain world, it should be a priority. Any worker is at risk of a furlough or worse if the economy takes a turn for the worse.
Creating an emergency fund can be easier than you think. Learn 25 ways to start saving right now.
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