Getting laid off can be an emotionally-charged experience. One of the best ways to deal with the trauma of losing a job is to take action. Here are some steps you can take to maintain your financial stability while you are unemployed.
Some things can’t wait. Take care of the items below as soon as you possibly can.
File for Unemployment Benefits If eligible, apply for unemployment benefits immediately. These temporary funds can help cover essential expenses while you search for a new job. Make sure this is one of the first things you do because it can take well over a month to process an unemployment claim. You want to receive that check as soon as possible.
Redo Your budget Take a close look at your savings, emergency funds, and monthly expenses. Are there expenses you can cut temporarily? Compare your emergency fund balance with your pared down expenses to get an idea of how long you can be unemployed without having to make major changes.
Healthcare Coverage Losing a job often means losing health insurance. Explore COBRA options or consider private insurance plans to avoid being uninsured. Are you married? You may be able to switch to your spouse’s health insurance. Insurance companies consider a spouse losing healthcare coverage as a qualifying event, meaning that they will allow you to make changes to your benefits outside of the open enrollment period.
While employed, you probably had a mindset focused on saving extra money but now it’s time to adopt a mindset focused on spending money–and as efficiently as possible.
Reevaluate Financial Goals Pause any non-essential financial goals. Saving for a new car or a big vacation? Put a pin in it (just for now).
Pause Automatic Savings If you have automatic savings set up to be deposited in IRA’s, 529 College Savings Plan, or other accounts, pause these savings for the time being until your cash flow stabilizes.
Reevaluate Life and Disability Insurance Most likely, your employer was providing Life and Disability Insurance. Will this job loss leave you uninsured? Most working people need life insurance to protect against premature death–this need does not change when becoming unemployed. Consider obtaining independent coverage since you are no longer receiving it through your employer. I suggest term insurance over whole life or universal to keep your costs down.
Defer Non-Essential Payments If you’ve got substantial debt, it’s worth your time to contact creditors. Discuss deferring loan payments or seeking alternatives until you regain stable employment.
Review Your Stock Options Determine the impact of your job loss on any stock options you may have acquired g (RSU’s, ISO’s, NQO’s, etc.). Some options automatically vest upon separation of service, which can impact your taxes.
Evaluate your Retirement Savings If you had an employer-sponsored retirement plan (401(k), 403(b), etc.), you now have the option to transfer this plan. Do not feel pressured to make a choice right away–you can keep your plan where it is for the time being. Think about whether you want to 1) Keep your retirement plan where it is; 2) wait until you’re employed again and then consolidate your old retirement plan with the new employer-sponsored retirement plan; or 3) Roll it over to a Rollover IRA. There’s a lot to unpack here, so if you’re confused, seek a financial advisor to help you with this decision.
Hands off that Retirement Account If it’s at all possible, avoid tapping into any of your retirement savings. This is a last resort. If you are under 59 ½, withdrawals from your retirement plans could come with a hefty penalty and tax consequences.
Seek Financial Advice If you’re unsure about your financial options, consult a financial advisor. They can provide personalized guidance based on your situation.
Once you find a new job, it’s time to pivot again.
Review your Emergency Fund If it took a hit during your unemployment, make building this back up a priority. I recommend having 3-6 months of living expenses in your emergency fund. If you didn’t have an emergency fund during this period, take a minute to reflect how much easier having those expenses in the bank would have made things. Then start an emergency fund.
Reestablish Your Automatic Savings Chances are you turned off any automatic savings that you stopped during unemployment (IRA, 529, etc.). Now’s the time to revive them.
Review Your Goals Determine if this life change impacted your long-term goals. Unemployment changes people. Some people realize what they can live without. It can help you decide how you want to spend the remainder of your career and when you want to retire.
Evaluate your Life and Disability Insurance If unemployment left you under-insured in these categories, consider obtaining independent insurance to help avoid this in the future.
Try to stay positive. Losing your job is a temporary setback. It’s not easy but it’s usually not permanent.
Taking the right financial steps can help you weather this storm. By being proactive, you can emerge stronger and more financially secure. Stay strong and keep moving forward!