5 Tips for Saving when Unemployment is Rising

As we creep into Labor Day we learn that the unemployment rate rose in August to 9.7% from July’s 9.4%. The U.S. Department of Labor announced September 4 that this rate is the highest in more than a quarter century. There are now an estimated 14.5 million jobless Americans.

I know what it feels like to lose a job. In early 2003, I lost my six-figure television job as a Wall Street Journal reporter for CNBC. Like millions of others in corporate America, I, too, was laid off in a cost-cutting move.

After my layoff I didn’t immediately rein in my spending. I even made some serious money mistakes that I’d never advise anyone else to make. For example, I took $80,000 out of my 401(k) plan.

I tell you my story in the hopes that you won’t be ashamed of the money mistakes you’ve made or that you can even learn from the mistakes I made in the past and not even make them.

Here are 5 tips for saving if you’ve been laid off, fear you might or just need to save more.

1. Don’t raid your 401(k). If you lose your job, leave your 401(k) with the same account if you can. Otherwise roll it over directly to a IRA or Roth IRA without taking any as cash. You will have 20% withheld for taxes if you took cash. And there’s a 10% early withdrawal penalty if you’re under age 55, as well as the missed opportunity of tax-deferred growth.

2. Pay bills on time. I know that is easier said than done for some people. You can save hundreds of dollars a year on late fees if you simply pay your bills as you receive them or set up automatic payment plans.

3. Curb eating out. You can save $1,825 a year by cutting out an average of $5 a day on fast food purchases and $3,650 a year for an average of $10 a day. Take a week or two and track your restaurant spending habits. Tabulate every bagel and coffee. You might be surprised by how much money you’re wasting on these purchases.

4. Become a frequent library patron. Borrow videos, DVDs, CDs and books from the library instead of purchasing them. If you’re used to buying even just 10 DVDs a year at $10 – $30 a pop, or downloading 50 MP3 music files a year for $0.99 – $1.99, or renting several videos a month from Netflix or Blockbuster, you’ll save hundreds of dollars a year by simply borrowing them from the library instead.

5. Take a level-headed friend shopping with you. If you’re the type who just can’t stop spending, bring a friend with you who can keep you focused. Don’t bring the friend whose Visa bill is constantly more than her rent, but do bring the one who knows not to squander rent money for a new pair of shoes one doesn’t really need. A friend with a good head on her or his shoulders will keep you from making outlandish purchases and wasting your money. Take that friend’s advice without holding it against her or him.

Valentine’s Day Tips #9 and #10 for Love and Money

 By Lynnette Khalfani-Cox, The Money Coach            

This is the last entry of 5 sets of “Valentine’s Day Tips for Love and Money” geared to help you achieve financial harmony in your relationship. Read the first set here, the second here, the third here and the fourth here. 

9. Retirement happens.  Plan Accordingly. Given the current financial crisis, younger generations are worried most about not having enough to live the way they want to, while those over 45 worry more about having resources for old age and retirement.  The under-45 crowd could learn a lot from its elders.  There’s no time like the present to start saving for retirement, especially for couples.  Sit down together and evaluate your respective 401K plans, then make your collective contributions to the plan that offers the best benefits – higher employee matching, for example —instead of each contributing blindly to your separate accounts. If you have maxed out the matching options under one 401K, and still have extra funds to put toward retirement, then consider other investment options, such as the other spouse’s retirement plan if employee-matching is available there. Free money in the way of matching, tax credits, tax deductions, tax-deferred savings, should typically win out over those that don’t offer such benefits .

10. It’s OK to have some financial independence, too. While it’s imperative to plan your financial future together, many couples still want their own money to spend as they like. In fact, over half of all couples keep some sort of separate bank accounts.  The smartest solution is to keep joint bank accounts to pay household bills but also separate checking accounts for personal spending.  Just make sure to agree on how much each of you contributes to your joint accounts — take into consideration what you earn.