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Make cutting expenses a family project. Do not try to carry the dual burdens of finding a job and holding the line on cash outflow. With your spouse or family members, draw up an honest financial income and outflow chart. Try to keep all family members aware of your situation. Be sure there is agreement on all expenditures. In other words, ask this question. "Do we have to buy it?"
Draw up a family operating budget or trim the current one. Now is a good time. The better you organize your finances, the longer you can look for the right position. Establish a budget which is tight and stick to it without exception. You will be amazed at all the items you can cut out or, at least, reduce.
If possible, plan a budget with your family that will carry you for a 6-month period; this means reducing your living expenses by one-third. If you observe the recommended job search regimen, the odds are that you will find another position before your severance runs out, but be on the safe side.
Stop using credit cards. Pay cash, especially if credit costs money.
Make a list of all creditors and advise them of your financial situation. DO NOT STOP PAYING BILLS. As long as you make a token payment to your creditors, you will generally find them to be understanding and accommodating. If you will be unable to meet finance payments on a regular basis, write or telephone your creditors and offer to stay current with interest payments. Most creditors will cooperate with such reasonable requests, especially if your payments are current and you have had a good record of being prompt. Even if denied, your request will not endanger your status if your payments are up to date. Keep copies of all payments made to creditors or letters written to explain your temporary predicament. Do not be intimidated by computer print-outs which warn that your credit status is in jeopardy. You are paying something on your bills and this will be important in the unlikely event that the situation should go to Small Claims Court or a collection agency.
Reassess your assets. You may have little cash available, but what about stocks, bonds, a second mortgage or a home equity loan, disposing of your second car, a loan on life insurance policies, dropping club memberships, or even selling art treasures and other valuables?
Do not hire outside experts to help you plan for this period. Between this professional Outplacement Program and your own contacts, you will be amazed how much assistance you can get without tapping your financial resources.
Many banks offer family budgeting forms free of charge. Ask your bank if they have such forms available.
Do not use your money to start your own business. You may not be in the most objective state of mind at this time; do not deplete your cash reserves when you have little incoming cash flow. Beginning your own business may seem like a viable alternative to corporate employment, but is risky under the best of circumstances. If you are determined to embark upon business for yourself, plan to do so, but do it on your own terms not as a result of your ex-employers' terms.
Apply for every kind of benefit for which you are eligible. Do not forget Unemployment Insurance! It may not be much, but it will help with the settlement of your funds during this transition period.
Do not apply for unnecessary loans to cover this period. Loans are extremely expensive and should only be used as a last resort. Also, remember that lending institutions could be hesitant to loan money even if you have collateral, because you are seeking employment. What you do not need at this time is disappointment and frustration.
The starting point for any financial plan involves a close, hard look at anticipated expenses. If you are married, it would be wise to sit down with your spouse and approach financial planning with the assumption that you will be out of work for 3 to 6 months. Any unfounded optimism at this stage would only leave you in a more difficult position at a later date.
On the next few pages is a general financial planning guide for anyone who finds themselves suddenly unemployed. The original source for this guide came to us through the courtesy of the Dow Chemical Corporation and the T.R.W. Corporation.
We have divided this section into 3 basic areas:
2. Present Cash Position and Anticipated Cash Flow -- Your present cash position and your estimates of possible cash inflows.
3. Supplemental Income From Sales of Assets, Etc. -- Your potential need to identify sources for additional cash through the sale of assets.
Some other things you may wish to consider :
2. A single-source loan to consolidate smaller debts. It will be difficult to get a loan from a financial institution while you are unemployed. However, if you have collateral, it is possible. You may be able to secure a loan at a lower interest rate than the interest you will be charged by retail stores or credit cards.
3. If you are really feeling pressed, sooner or later you may have to consider selling your home. A respected realtor with whom you can frankly review your problem will prove invaluable.
In general, any expenses incurred while looking for a new job in your present occupation are deductible. This is true whether or not you actually obtain a new job. If you are unemployed, you may deduct the expenses of looking for a new job in your most recent occupation. Expenses incurred while looking for a job in a different occupation are not deductible, even if you obtain a new job. (For further definition of "different occupation" please refer to the Research Institute of America's "Federal Tax Coordinator," Volume 16, paragraph 4151).
This section is divided into four (4) basic areas:
All of the items that follow may be tax deductible if you are seeking employment in the same business or trade. Please seek the advice of an accountant or tax expert to determine the suitability of deductions.
Travel expenses when looking for a new job while still in your present occupation are deductible. The trips must be made primarily to look for a new job. Deductible travel expenses include transportation expenses to and from the area, food, lodging, and transportation while there.
Local transportation to look for a new job in your present occupation may be deductible. Transportation from home to an interview is nondeductible commuting. The cost of transportation from your present job to a job interview or outplacement firm, from an outplacement firm to a job interview, from one job interview to another, and from a job interview to the present job location is deductible. When calculating automobile expenses, the standard mileage rate of 28 cents per mile may be used in lieu of actual expenses.
3. MOVING EXPENSES
If you elect to move in order to work for a new employer, you may be able to deduct the cost of moving your household to your new business location. The following paragraphs describe the parameters that must be met in order to deduct moving expenses:
Distance: The new principal place of work must be at least 35 miles farther from your old residence than your old residence was from your former place of work.
Full-Time: You must be a full-time employee for at least 39 weeks during the 12-month period immediately following the move to your new job location. You may have already obtained work in the new place at the time of your move or you may secure employment after your move. Your family does not have to arrive with you, and your new household need not be established at that time.
Closely Related: Moving expenses must be closely related to the date you begin work. In general, you may deduct expenses incurred more than one year after you begin work at the new location only if you can show that circumstances prevented you from completing your move earlier.
Travel expenses, including meals and lodging for yourself and your family while en route to your new residence are deductible. You may also deduct the cost of gas, oil, and incidental repairs en route, house hunting trips, temporary living expenses for a period of 30 days, and the actual costs of moving your household (i.e., the cost of transportation from your old residence to your new one and the cost of packing, storing, and insuring household goods).
The cost of selling your former residence and purchasing a residence at the new location is deductible. These costs include broker's commissions, attorney's fees, points that do not qualify as interest, and similar expenses incident to the sale or purchase of a home.
4. MISCELLANEOUS EXPENSES
Professional or trade association dues are deductible only if the membership benefits you in your field of desired employment.
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