Losing a job can be financially and emotionally devastating, but there are proactive steps you can take to minimize the damage. This is particularly true if you have a feeling that a layoff may be coming, whether due to macroeconomic factors or company-specific ones.
Beefing up your emergency fund ahead of time, to the point where it holds at least three-to-six-months of your salary, is an excellent preventative strategy. But if you’re at the point where a layoff is imminent and you don’t have the time or money to put any more away, here are some steps you can take to shore up your finances.
Immediately Stop All Non-Essential Spending
As soon as you have no income, look to limit your spending as much as possible. Without a salary or wages, you’ll have to draw from savings and/or credit cards to pay your bills and make ends meet, and over the long term, that’s an unsustainable solution.
By limiting your outflow as much as possible, you’ll make your savings last longer and avoid going deeper into debt. Some places to trim non-essential spending include streaming services, digital and print subscriptions, dining out and travel.
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File for Unemployment
One of the very first steps you should take after losing your job is to file for unemployment. This may very well be your primary source of income after you lose your job, so it’s important to file that paperwork as soon as possible so you don’t fall further behind financially.
Be sure to check if your state or the federal government is offering any additional unemployment support, as they did during the heart of the pandemic.
Rework Your Short-Term Budget
A budget is meant to account for every last dollar of your income. But if your income stops after you lose your job, your working budget will no longer be valid. Although you won’t be able to cover all of your budget items with no income at all, you can at least rework it to get your expenses as low as possible.
For example, for the days, weeks or months you aren’t working, you won’t be paying taxes, so you can trim those from your budget. Similarly, you might be saving on ancillary items like gas or clothing. By tweaking your budget during your time of unemployment, you’ll be able to see in black and white how much you’ll need to draw from your savings or other sources of income, and how long those might sustain you.
Use Your Emergency Savings
Your emergency savings may be your one and only source of income after you lose your job, at least until unemployment benefits kick in. Although you should try to avoid completely raiding your savings, this is the exact time that you should dip into your emergency fund, as losing your job definitely qualifies as a financial emergency.
Just commit yourself to rebuilding it after you find your new job.
Cash Out Any Unpaid PTO or Other Benefits
When you lose your job, be sure to check with your former employer’s HR department to see if you are owed any paid time off or other benefits. Depending on the employer and the state where they are located, you may either forfeit your unused PTO or it may have to be paid out to you immediately.
Other benefits, such as small pension or retirement fund balances, may also be paid out to you.
Call Your Creditors
After you lose your job, you don’t want to be in the position of losing your good credit rating as well. If you’re encountering financial difficulty, contact your creditors immediately and explain your situation.
In many cases, creditors will offer to suspend payments for a certain period of time, reduce interest rates or lower minimum payment amounts. In any event, it’s best to let your creditors know where you stand financially rather than to simply stop paying them and watch your credit rating collapse.
Look at COBRA and Other Health Insurance Options
Something you want to avoid after losing your job is dropping your health insurance as well. If a medical emergency strikes while you are out of work, your emergency fund might not be sufficient to both pay your medical bills and fund your lifestyle.
Many employers will voluntarily extend health insurance to workers for a period of time after they are laid off, while others may be required to offer coverage through COBRA continuation of health coverage. Be sure to check with your former employer’s HR department as to your available options.
Consider 0% Credit Cards
Although putting your expenses on a credit isn’t generally a sound financial strategy, in some cases, it can make sense. If you have a good likelihood of getting a new job in the relatively near future, using a credit card with a 0% purchase APR rate to fund your expenses could pay off in the long run.
Some cards extend this period for 12 or even 18 months, which in many cases is an adequate period of time to cover your expenses while you look for a new job. But you need the financial discipline to pay that money back once you get your new job — or else you’ll be in a bigger financial hole than when you started.
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