Getting laid off can be an overwhelming experience. You’re likely dealing with a mix of emotions, from relief to fear to frustration and more. Whether you have a fair warning or not, a layoff is almost always unwelcome news.
Outside of the obvious need to begin a job search, you also have the financial impact of unemployment. In some instances, a severance package can help lighten the blow. Unless you have a fully stocked emergency fund, weathering the potential financial storm heading your way requires action on everything from filing for unemployment to slashing expenses.
1. Apply For Unemployment
The first step you need to take after being laid off is to apply for unemployment benefits. During the beginning of the COVID-19 pandemic, the U.S. Labor Department reported that around $794 billion benefits were processed and issued between March 2020 and July 2021, though it took longer for some people who filed later than others. “Benefits can take weeks to process, so apply as soon as possible. Most states let you file a claim by phone or online,” said Carla Dearing, founding CEO of Sum180, a financial planning service.
Unemployment filing requirements vary by state; you will want to research what your state expects. “For state-specific instructions on how to apply for unemployment, go to CareerOneStop.org,” said Dearing.
2. Make an Emergency Budget
When you’re laid off, you need to take a serious look at your budget for areas to cut back. You don’t know how long you’ll be without work, and your primary concern should be caring for your absolute needs. Most, if not all, luxuries should be cut.
“If a sudden job loss occurs and there’s no plan in place, sit down and look at your typical spending for the month,” said Jacob Wade, personal finance expert and founder of iHeartBudgets.
“Write down how much you spend on absolute necessities — food, shelter, utilities, clothing — and figure out how much money, minimum, you need to survive each month. This is now your ‘Emergency Budget’ until your situation changes. This step will likely feel at least a little uncomfortable because it requires sacrifice. This can be an emotional time, and it’s important to remember that there is a purpose to the sacrifice.
“The drawbacks of having to cut back financially after being laid off is your emotions,” said Dolph Janis, founder and owner of Clear Income Strategies Group. “It’s hard enough to stomach being laid off, but now you have to cut out all of the things that make you happy. Realize that you’re just protecting yourself.”
3. Cut Nonessential Bills
The first financial change to make after starting your emergency budget is to cut cable and other nonessential bills. The average American cable bill is nearly $217.42 per month, according to U.S. News & World Report. That $217.42 can be used more effectively in other areas of your budget. If you’re currently under contract, call your cable provider to ask to be put on the lowest-priced package possible, as you can still save a significant amount of money each month.
The next candidate for cutting is your cellphone bill, especially if it’s high. The average monthly bill among the four major carriers in the U.S. is between $120-$150 per month, according to CBS News. If you’re not under contract, you can switch to a non-contract plan with a discount carrier for $40 or less per month, on average. You can also call to reduce your bill if you’re still under contract.
Other nonessential bills to cut are gym memberships and other subscription/membership arrangements. See if you can get on a family or friend’s shared account for subscriptions like Hulu, where users can set up individual profiles at no additional costs. You might even be able to lower your energy bill by calling to ask about hardship programs.
4. Change Transportation Methods
Your car can be a source of significant expense. When you consider insurance, gas and potential parking costs, it can add up quickly. You’re legally required to carry some sort of auto insurance, though you do have options to reduce your cost.
One such option is unregistering and storing your car, and reducing the insurance to a plan that will cover it against fire or theft while it’s stored. To be certain if you qualify for such coverage, reach out to your insurance company, as well as the department of motor vehicles to see what your state law requires.
You can also find significant savings on gas costs as the price for fuel continues to increase. Typically, the average U.S. household will buy around 90 gallons of gas each month, and with market trends showing only minimal slowing in price hikes, expect to pay $150 more per month if the upward trend continues. That’s why it might be best to ditch the gas pump altogether in favor of pumping your legs with alternative transportation methods, such as biking.
5. Cut Retirement Savings
Saving money for retirement is a great thing to do, although not when you’re unemployed. You are facing a financial emergency, and your focus should be on the present. The last thing you want is to contribute to retirement, only to need those funds in a few months and incur the 10% withdrawal penalty and taxes.
Focus on getting through your time of unemployment, and save money for retirement when you get your new job.
6. Modify Your Mortgage
Owning a home is the largest monthly expense for most Americans. The last thing you want is to lose your home because you can’t make your monthly mortgage payments. In the case of unemployment, you can attempt to modify your mortgage through the government’s Making Home Affordable program. The requirements vary based on your given situation, but can provide a way to save significant money each month.
“I applied and was approved after providing all the supporting documentation of my hardship,” said Thomas Nitzsche, media relations manager at ClearPoint Credit Counseling Solutions.
“The result was an interest rate drop from 5.5% to 2.1% for five years, and about a $300 per month payment drop. Because of my on-time payments, I also received $1,000 every year for five years in principal reduction incentives, and then another $5,000 at the sixth year. Because of this principal reduction, I was also able to recast the mortgage (at no cost), which dropped the payment again [by] about $60 per month.”
If mortgage reduction isn’t possible, you can also consider renting out a room in your house or apartment to save money each month. Be sure to check first with any HOA or rental requirements before making this decision.
7. Focus On Building
At a certain point in your budget slashing, you will find you can only cut so much. That’s natural. This is a great time to focus on growing your current skills or building new ones to improve your marketability.
“Even though you might not be making a lot of money at the moment, being unemployed is a great time to sharpen your existing skills or work on building your side hustle. If you use your time wisely, you can turn losing a job into a more lucrative long-term solution,” said Greg Johnson, personal finance expert and co-owner of Club Thrifty.
Don’t be afraid to tell friends and family you’re looking for work, or have a skill to offer. This is a time to utilize your established network to get back on your feet.
8. Lower Your Debt Payments
Debt, like unemployment, is a financial emergency. It’s great if you can continue to make debt payments, though that might not always be possible. Just look at the U.S. Department of Education’s troubles as they sort through their student loan relief problems in court.
Regardless of the situation, contact creditors before you have any issues making payments on time and see if it’s possible to restructure your monthly payment plan.
You might consider working with a nonprofit credit-counseling agency to manage your debt through a debt management plan (DMP). “On average, a DMP reduces credit card interest rates by about half, and the total monthly payment by about 20%,” said Nitzsche.
9. Cut Your Grocery Spending
The average person spends anywhere between $150-$300 per month on food costs, with inflation and some not-so-good habits contributing to the high cost of the typical grocery bill. However, the good news is that you can cut your grocery spending by purchasing generic items or shopping at discount stores.
This will require sacrifice, but keep the goal in mind — being able to make it through a lean time. Places like Dollar Tree have a lot of the essential groceries you are looking for on sale at discounted and marked down prices.
Facing unemployment is a stressful time, but wise decision-making can help get you through it. By making some of these changes, you can better weather the storm and set yourself up for success.
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Jake Arky contributed to the reporting for this article.