The bank staff financial advisor MAY give you good advice, but then again, he may not.
This is what I recommend (please note that I am BOTH a tax professional and a financial planner):
- Roll the entire 401K into a rollover IRA, preferably with a stock brokerage firm. Charles Schwab, Fidelity, Etrade, etc. are all good choices here. Put the money into a money market fund.
- Sit down and work out a strict survival budget. Here is your hierarchy of payments. Pay them each month in this order:
- Food (this is groceries; until he gets a new job equal to his old job, there is NO EATING OUT!! ).
- House payment/rent.
- Utilities.
- Car payment(s), which includes the car insurance and gas for the car. If you have TWO car payments, take a serious look at trying to sell the most expensive of your two cars. This may not be possible (if you are upside down in both car payments), but you need to look at it seriously. Getting rid of one car will reduce the car insurance as well.
- Health insurance (hopefully, you can get coverage from YOUR job). If not, you may have to do without.
- The bare minimum on clothes for yourself, your husband and children.
- Then (and only then) credit card payments. You may be able to pay only the minimum amount, if that. If the money runs out, these bills go unpaid! It will NOT do nice things to your credit, but you can recover from that.
Now, to make this work, you may need to generate income over and above your part-time job. Here are some suggestions:
1) Ask if you can step up to full-time. Your husband can be a stay-at-home dad if necessary.
2) See about selling whatever you have on eBay. The concept of one person's junk is another's treasure applies here. You would be surprised what some people will pay for common items on an eBay auction. eBay will get their cut, but it can produce some much needed cash flow (even if you get only a fraction of what you paid for the item) while getting rid of your "junk". Just make sure the purchaser pays the shipping!
3) Have your husband use the Internet to plan his job search and work his resume. I grant you that it IS a bad time to be lookng for a job, but a systematic approach almost always is better than a haphazard job search.
4) While looking, the husband should consider working at a temporary job. The driving factor here is how much will he get in unemployment benefits. If his benefits are decent, then his job search becomes his full-time job.
WHERE TO CUT ON THE BUDGET:
1) Either get rid of the cell phones, or get rid of the house phone. Having both is redundant.
2) If you have cable TV/Internet, cut it off! Sorry, when you are on a survival budget, cable TV and cable internet is a LUXURY. Get use to dial-up Internet and broadcast TV. It may not be much, but broadcast TV is FREE and dial-up Internet is about $12 a month.
3) Put the credit cards AWAY! You now pay cash or do without as MUCH AS POSSIBLE.
4) Your kids may now qualify for free breakfasts and lunches at school. If so, apply. If not, they should brown bag it!
5) See if you qualify for food stamps. If so, swallow your pride and APPLY! This program is for situations just like this.
6) For your 2007 tax return, see about using a Volunteer Income Tax Assistance (VITA) program in your community. Ask at the local library (that is where they normally set up). They will prepare your tax return FOR FREE and even efile for you, possibly for free. The tax refund could serve as an emergency fund to pay your survival bills. If there is NO VITA program available in your community, contact me via email.
BTW, DO NOT PAY OFF YOUR CREDIT CARDS with your tax refund. You may need this money later on to pay unexpected (but vital) bills.
After you have done all of the above, if you absolutely have to, then (and only then) do you make monthly withdrawals from the rollover IRA. Recognize that whatever you take will be taxed at your marginal tax rate (that's he tax rate you pay on the LAST dollar you earn in 2008, which could be as high as 25%). You will also pay state income taxes, PLUS a 10% Early Withdrawal Penalty. The effective tax rate could be as high as 50%, but will be at least 25%. That is a HEFTY penalty to pay!
That's about it.
I invite anyone else to post suggestions as to how you can save money to make it through this difficult time.
Good luck!
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