smart spending

Personal finances after unemployment

Williamson says she did pay off one of her three credit cards after she caught up her mortgage and utilities with her first checks. She's now trying to allocate some of her income to rebuilding a cash reserve as well as paying off the other two credit card balances.

She's also putting a little money aside for an occasional dinner out with friends and a weekend trip later in the summer.

Straightening the budget

Blayney says that Williamson is taking the right steps toward rebuilding her finances. "I would say getting short-term emergency funds built back up and getting debt paid off are both important next steps," says Blayney. "Treating yourself every once in a while is also good, and when you get checks again, you'll want to celebrate, but don't allow your spending to catch up to your new paycheck."

Scott Crawford, CEO of DebtGoal.com, a company in San Francisco that helps clients prioritize paying off debt, agrees. "I would advise people to build a small short-term cash reserve first," he says. "Your priority should be to give yourself options, and cash gives you options."

If you don't have a high debt load, Crawford says you can concentrate on building a larger cash reserve, possibly enough to live for three to 12 months. However, if you have a high debt load, you should build a small cash reserve, maybe as little as $500 to $1,000, and then concentrate on paying your debt down.

Crawford says not to put a lot of thought into what the short-term savings account yields. "It really doesn't matter if it is yielding a half percent or a full percent. That money is only there to give you options," he says. "Put your thoughts into things that matter, such as reducing your short-term debt."

Blayney says when paying off debt, prioritize your bills by highest interest first. "Address your debt that is costing you the most," she says.

Once your living expenses are covered, your short-term savings is rebuilt and short-term debt is significantly paid off or paid down, you can then concentrate on rebuilding your retirement or contributing to it once again.

"When you get a paycheck, think of a portion of it for today and the rest is for tomorrow," Blayney says. "Hang on to that frugality you learned during your unemployment.

"You will have to take into consideration that if you were unemployed for one to two years, you weren't contributing to your retirement or SSI (Social Security) and you might have to work a little longer."

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