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Back on the job? Get back on track

By MP Dunleavey


(MONEY Magazine) -- What a relief. After a long bout of unemployment, you've landed a job. Say hello to direct deposit and goodbye to belt-tightening. Maybe you can redo the bathroom soon after all.

Or maybe not. First, you need to regain lost financial ground, from replenishing your emergency savings to paying off any debt you've accumulated to restoring your retirement account.

Accomplishing all those tasks will be especially challenging if, like many recently rehireds, your new salary doesn't equal the old one.

Of workers who were laid off earlier this year and have found new jobs, 61% took pay cuts, a CareerBuilder survey found. But even if you were lucky enough to get back to even (or better), addressing your multiple priorities will require juggling. This game plan will help.

Tackle urgent expenses; table the rest

If you've been out of work for a while -- the average is eight months, according to the Bureau of Labor Statistics -- you've probably put off some important expenditures.

Now is the time to attend to pressing maintenance on your home and car, as well as any medical care you've postponed for yourself or your family. "You want all the fundamentals in working order again," says Hudson, Ohio, financial planner Karin Maloney Stifler.

Since you've likely depleted your cash cushion, further delaying such treatments or repairs will put you at risk of an emergency you can't afford, Stifler says. As for nonessential projects -- like the bathroom redo -- keep them on hold until you're on firmer financial footing.

Double down on debt and emergency savings

Once these bills are out of the way, you want to strike a balance between replenishing emergency savings and paying down debt.

Nearly a quarter of those who have been unemployed for six months or longer used credit cards to pay bills, a 2010 Pew Research Center study found. If you're among them, check the rates on your cards, and focus on the highest-rate balance first, says Scott Edelman, a financial planner in Yardley, Pa.

With credit card rates averaging 14.4%, up from 11.4% in 2009, finance charges will seriously cut into your ability to save. Big credit card balances can also do major damage to your credit score.

Paying off a home-equity loan or line of credit is less urgent. The interest is tax-deductible, and since the debt is secured, it won't dent your score as much.

Having had to rely on your emergency reserves, you no doubt understand why it's important to rebuild these while paying down debt. You want to be ready for the next crisis.

Your goal: to bank at least six months of living costs. "So if you have $500 in discretionary money per month, put $300 toward debt and $200 toward savings," says Edelman.

Don't have enough free cash to realize these goals quickly? You might have an easier time refinancing your mortgage now that you're employed, and that can leave you with more money per month, notes San Mateo, Calif., financial adviser Ana Galutera.

Also, if you took a pay cut or weren't working for much of the year, you might be in line for a bigger-than-normal tax refund in April, which you can use toward these goals.

Rebuild retirement funds

Where does your retirement fund fit into this very long checklist? Even if you can manage only a tiny amount, try to contribute to your new company plan right away.

A slow ramp-up will ease the sting, says Troy, Mich., financial planner Warren McIntyre. Start with a small fraction of your pay and bump it up monthly or quarterly.

When the debt is finally gone and your cushion rebuilt, you can laser in on retirement. But just resuming savings at the previous levels won't be enough.

You'll need to save more to make up for contributions and growth lost over the previous months. The older you are, the more critical it is to ratchet up your savings rate. "If you're in your thirties, you have many years and other ways to recoup the losses," Stifler says.

While you may be short on resources, whatever you can put away above what you had been saving would help reduce the shortfall.

If this would run you up against 401(k) limits -- $16,500 if you're under 50; $22,000 otherwise -- you could put extra money into a traditional IRA for yourself and, if possible, one for your spouse, up to $5,000 each ($6,000 if 50 or over).

Once you've established a routine, you'll be able to put more money into living life, not just playing catch-up.  To top of page

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