Getting the Pink Slip: 6 Financial Moves To Make After a Layoff
Whether expected or not, getting laid off from a job can be a panic-inducing moment. It can mean very different things depending on your situation, like whether you will receive a severance package or not.
“In a normal environment, unemployment is already difficult,” said Mindy Yu, director of investing for Betterment at Work, which provides and manages 401(k) plans for businesses. “But then when you couple it with the pandemic, the recovery, and inflation rising to 7.9%, everything you’re paying is so inflated. These are things that can add additional stressors to people when they’re thinking about budgeting.”
To lower your heart rate, Yu said, begin by writing everything down. “It’s important to visualize what your financial situation is at this point and what the direct impact is so that you can address it.”
Examine Your Severance Package
Employers aren’t required to offer severance pay as part of a layoff. Many still do, though, and the standard package includes one to two weeks’ pay for every year of service, which could be paid out in periodic installments or as a lump sum.
In the event of a lump sum payout, budgeting it out over time is especially important. Yu warns against the temptation of spending it on something you don’t need. “This is your lifeline,” Yu said. “Being very responsible with your severance pay is an absolute must, and having a financial picture in front of you will help curb those enticements.”
You may even be able to negotiate a better severance agreement with your employer, especially if you look beyond the money. “It can be monetary, but also think about things like insurance,” Yu said. “Health care costs are so significant, so if you can negotiate to have insurance coverage, that will be beneficial to you while you’re seeking full-time employment.”
Coming into the conversation with your employer prepared with research and knowing the standards within your industry will also set you up to be a better negotiator.
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Cover Your Healthcare
You may have several options when it comes to your healthcare coverage. It could be an extension of your former employer’s plan via COBRA, enrolling in your parents’ plan if you’re under 26, signing on to a spouse or partner’s healthcare plan or finding a plan on the health insurance marketplace through a special enrollment period triggered by your layoff.
The important thing is to make sure you remain covered, Yu said. “Even if you have to pay a high price for COBRA, you want to mitigate any risk of a severe health crisis,” she said. “You have to think about this in a short-term protection mentality to bridge the gap.”
Reevaluate Your Financial Habits
With a clearer picture of your budget, immediately look for ways to cut back on nonessential spending. “Little purchases can add up fast, and it’s better to give up a little now and continue the habit of saving to ensure you remain financially stable while out of work,” Yu said.
Check For Temporary Relief
Many forms of relief are on the table for someone who has been laid off. Check in with all of your lenders and utility providers to see what they can offer, from deferring payments to lowering your minimum payment.
This could also be a good time to take advantage of interest rates that are still low by consolidating your debt and transferring balances to zero or lower APR credit cards, Yu said.
Use Your Emergency Fund
If you have a rainy day fund, this is the time to consider using it, Yu said. You can look to replenish anything you take out when your income starts flowing again. “It’s here for situations like this,” she said.
If you haven’t filed your taxes yet and you expect to get a return, she also said there’s no better time to get it done for an additional cash injection.
As far as other investment contributions, you may want to hit the pause button. Tapping into your 401(k) for extra cash should be a very last resort. “Many people might be enticed to dip into these savings, but that’s why planning and budgeting is important,” Yu said. It’s better to avoid not only the penalties of withdrawing early from your 401(k) but, secondly, you’re withdrawing your ability to grow your assets over time, she said.
Rolling your 401(k) over into a Roth IRA is another option to consider that could potentially give you greater control, flexibility and lower fees.
Register For Unemployment
You want to start collecting unemployment funds as soon as possible. In lockstep with this, begin looking and applying for a new job. Even if it’s not your dream job, temporary or part-time work will help bridge the gap.
Unemployment benefits are available at different tiers, so even if you’re working part time, you can still collect unemployment funds. “I think a lot of people automatically strike that out because they think they won’t qualify if they have a part-time job,” Yu said. Check your state’s program and make sure that you understand your eligibility options for supplementing part-time or sporadic income.
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