Right now, the mass layoffs due to the Coronavirus pandemic have increased the U.S. unemployment rate to 14.7% in April, the highest level since the Great Depression. Among those layoffs are furloughed workers. Work furloughs are becoming more common as companies look for temporary options to cut costs so they can sustain business.
But what exactly is a furlough? How does it work? What financial assistance is available to furloughed workers? We’ll answer these questions and share 4 ways to manage your finances during a work furlough.
What is a Furlough?
The technical definition of a furlough is an unpaid leave of absence. Unlike a layoff, furloughs are meant to be temporary and employees are expected to return to their normal work hours. A growing number of employers are furloughing workers to cut costs until the COVID-19 crisis is under control and the economy shows signs of improvement.
There are many kinds of work furloughs happening right now. Since the main purpose is to save money by reducing staff and labor costs, businesses are either furloughing workers until further notice, or cutting back hours. For example, employees may be required to take unpaid leave only one day a week.
4 Ways to Manage Your Finances During a Work Furlough
Because of these variables, it is important to prepare your finances for any work furlough situation you may face until you get back to your fully-paid position. Here are 5 ways to manage your finances during a work furlough.
1. Take Advantage of Your Benefits
It’s important to ask your human resources representative every question you have about insurance coverage or any other benefits you’re eligible for as a furloughed worker. You don’t want to leave anything on the table that might help you during this time.
If you are a furloughed worker receiving zero pay, you’ll be able to collect unemployment during this time. Because of the COVID-19 pandemic, unemployment benefits are available to more workers, including those who are furloughed. On top of the unemployment you can receive from your state, the CARES Act includes an additional $600 a week. Here is a look at what unemployment insurance benefits are available by state.
Be sure to speak with HR about your health insurance. Because you are still considered an employee, you may still have access to insurance–particularly if your hours are cut back, but not eliminated. If you’re not able to receive insurance, you can continue your existing coverage for a period of time under COBRA. While it’s up to you to cover the entire cost for your existing coverage under COBRA, you may be able to find a cheaper, income-based alternative through the Affordable Care Act. Whatever the case, it is very important to maintain healthcare during this time.
2. Revise Your Budget
Take a look at your budget, and consider modifications in light of changing circumstances. Begin by making a list of your necessities versus your luxury items, like food delivery and entertainment. The best way to do this is to look back at the last six months and prioritize all of your expenses so you can identify areas to either cut back or save, putting any extra money into a savings account.
3. Prioritize Your Bills
Once you have a budget together, next you want to take a look at your bills. If you are worried about paying your car loan or mortgage during the months or weeks you’re out of work, reach out to your lender as many companies are offering programs to help during this time. If you have federally backed loans for school or your mortgage, you may be able to suspend your payments without penalty under the CARES Act. For car loans and credit card payments, contact the servicer or lender to see what options are available. Whatever you do, do not stop payments without first working out a plan. You do have options during your work furlough.
4. Avoid Touching Your Retirement
It’s hard to not to consider dipping into your t retirement savings to get through this time. But, if you can avoid it, you should. While the government has changed the rules to allow for penalty-free distributions during the pandemic, you will still be responsible for federal and state income tax. Also, your 401(k) is a long term investment that grows through compound interest. Once it’s gone, it’s gone. Financial experts only recommend using retirement funds as your last resort.
Whether you’ve already been furloughed or could become a furloughed worker in the next few months, it’s important to put a financial plan into action now. Besides implementing the above four ways to manage your finances during this time, you also want to keep in contact with your employer for status updates so you can get a better idea of when you can return to your job.
Read more: 4 Ways to Prepare for an Economic Recession