Develop a plan if facing a furlough

Furloughs or temporary layoffs have been a topic many are hearing or read­ing about in the news.

For large employers, cutting a few days of their workers’ pay can often save millions of dollars during tough economic times when options for reducing bud­gets because of declining income and sales tax revenue or company prof­its become a priority.

Furloughs can be vol­untary or mandatory.

For a worker earn­ing, say, $ 180 a day ( about $ 47,000 an­nually), a 12- day furlough ( as in one work day per month) translates into a loss of $ 2,160 in gross income or about 4.6 percent of annual earnings.

The good news is furloughed workers are not unemployed and they get to keep their job and benefits such as health insur­ance.

For those who may be facing a furlough, consider a plan for both the income loss and your use of unpaid time.

  ■ Start calculating — It makes sense to start by figuring what you earn in a day. For example, if you earn a $ 40,000 gross income ( i. e., your salary before taxes), divide this number by 260 ( the average number of workdays in a year).

  The result ($ 154) is your gross daily pay. Then multiply this number by your federal marginal tax rate ( see the Web site http:// njaes. rutgers. edu/ money/ tax­info/ to find this rate for your tax filing status) and subtract it from gross daily pay to deter­mine your daily after- tax pay.

  For example, $ 154 – ($ 154 x .25 or $ 39) = $ 115. This is a rough estimate of income lost for each furlough day.

  It will actually be somewhat less when FICA and state in­come, unemployment and/ or dis­ability taxes on lost income are subtracted.

  ■ Seek information — Find out when and how your pay will be reduced and the procedure that your employer has estab­lished for taking time off.

  ■ Save a surplus — If you have enough advance notice about a furlough, try to gradual­ly save up the amount of money that you will lose by reducing expenses.

  ■ Spend less — Try to reduce monthly expenses by the amount of lost monthly income.

  ■ Suspend voluntary deduc­tions
 — If you can’t close the gap between your reduced income and household expenses entirely through spending reductions alone, consider temporarily sus­pending ( or reducing) voluntary payroll deductions, such as chari­table donations and retirement savings plan contributions, until the furlough ends.

  Contact your employer’s pay­roll or human resources depart­ment to complete necessary paperwork.

 ■ Seek self- employment
 — Consider moonlighting in addition to your day job. Assess alternative skills that might help recoup lost earnings.

  For example, freelance Web site development skills if you are skilled in this area, tutor college students, secretaries could take on clerical assignments.

  ■ Savor the time — Reduced income isn’t always a welcome change, but consider the options.
  More time may be available for doing enjoyable or necessary activities.

  Make time for home mainte­nance and repairs or just spend time with family.

  This article was originally published by Barbara O’Neill, Ph. D., CFP ® , Rutgers Coopera­tive Extension.

  You can find more informa­tion on this topic and others by visiting www. extension. org and selecting personal finance.