12 Steps You Can Take if You Lose Your Job
Losing your job is one of the most devastating life events both emotionally and financially.
Open the paper or do a quick Google search online and you’ll see all the recent corporate layoffs happening in America.
This month, General Motors said it was starting to hand pink slips to about 4,000 salaried workers in the latest round of restructuring.
In January, CNBC reported Verizon Media Group, formerly known as Oath, would be laying off 7% of its workforce, affecting approximately 800 employees. Buzzfeed, another media company, said it was cutting about 15%, or 250 of its employees.
And very recently, it was announced PepsiCo will begin a four-year restructuring plan expected to cost the company hundreds of millions of dollars in severance pay. PepsiCo CEO, Ramon Laguarta said last Friday it will be “relentlessly” investing in automation.
If the company you work for is in a similar position or you’ve recently been shown the door by an employer, the good news is there are some actionable steps you can take today to help get you back on your feet.
Although layoffs can be emotional, a pink slip should be a call to action — to get your finances in order, including spending, savings, health insurance, and credit.
If you’re single or a sole breadwinner my advice will be different than if you’re part of a dual-earner household. If you’re living paycheck-to-paycheck versus you have some savings, my advice changes as well.
Two things that will stay constant throughout the process of overcoming job loss though are your focus: looking for a new job and attending to your emotional and psychological well-being.
On top of that, here are 12 steps I recommend you take immediately after you lose your job to keep your financial house in order.
Step 1: Make a Plan
If you’ve never created a budget before, now is the time to learn. You need a detailed view of your income and expenses.
Start with the income side, list your inflows of cash, including severance and unemployment payments. How much do you have in savings? Also include potential loans either from family, credit cards and home equity lines of credit. But, keep high-interest options as last resorts.
Next, list your expenses. What are your fixed monthly expenses that won’t change, think mortgage or rent and car payments. What are your variable expenses that you have immediate control over, like gym memberships, subscription services, eating out?
Figure out what your bare-bones baseline budget looks like.
Step 2: Take Care of Your Four Pillars
When you create your plan to manage the short-term impact of losing your job, you need to maintain your four financial pillars: Food, shelter, transportation and utilities.
Don’t worry about your company 401(k). Leave the money in your former employer’s plan while you take care of more pressing tasks. Now is not the time to make quick irrational moves with your retirement nest egg. Your focus needs to be on cash flow.
Medical and credit card bills can wait. Although paying the minimums is preferable than not paying at all.
Step 3: Take Control of Spending
Losing your job is a crisis on earnings, but in the short term, you have more control over your spending, so reign it in.
Look at the last three months of credit and debit card bills and ruthlessly cut optional expenses. Your goal should be to get back to the bare minimum. Dining out, Netflix, HBO, hair and nail salons, expensive gym memberships all have to go.
Step 4: Stop Saving
Job loss is temporary, so stop all saving in the short term to keep cash flowing. Any college savings plans, IRAs, etc. stop funneling cash into these accounts until you find another job.
Step 5: Don’t Pay Extra; Pay the Minimum
If you were paying extra on your mortgage, credit cards, car loan, stop! Drop those payments down to the minimum. Preserving cash is priority.
And if your spouse is working, lower the tax withholdings. You need the money now, not next April.
Step 6: Dip Into Savings
You know that emergency fund you’ve been building? Now is the time to use it. If you have money saved outside your retirement plan, use it to cover some short-term expenses.
Step 7: Don’t Drop Health Insurance
Most employer health insurance will have you covered until the end of the month, so if you can go to the doctor or dentist before it expires. You can continue your health coverage under COBRA for 18 months, but that can be costly.
I recommend searching for cheaper private insurance. If you’re a healthy single person, you might look for a bare-bones high-deductible policy that covers emergency situations, at least for the short term.
If you’re in a dual-earning household, your spouse that’s still working might be able to pick up the lost health coverage.
Step 8: Ask About Benefits
It’s not easy, but you should talk to your former employer to find out what your group policies are for long-term care insurance and life insurance. If you’re single and nobody depends on your income, you can probably forgo life insurance to cut down expenses in the short term.
Step 9: Contact Creditors
Do this immediately. You don’t’ have to give them a sob story, just be honest and realistic about the situation. Surprisingly, creditors can help if you’re up front and proactive, reaching out before payments get missed.
They can sometimes offer to defer payments or lower your interest rate. If your job prospects are looking grim, also consider refinancing or consolidating multiple loans.
You can also reach out to your utility company, which may have hardship programs offering temporary breaks on costs. For your mortgage, talk to a mortgage servicer and explain the situation. Ask about foreclosure options in worse case. Whatever you do, don’t stop opening bills.
Step 10: Don’t Neglect Your Credit Scores
If it’s real crisis mode, don’t’ worry about your creditworthiness. But, if you can help it, try to keep your credit scores in good standing.
The main factors affecting your scores are paying bills on time (see Step 9) and the amounts you owe, relative to how much credit you have available.
You don’t want to wreck your credit scores if you can help it. This will make job recovery even harder. Some employers actually conduct credit checks before hiring. And if you have to relocate, a landlord might check your credit and decide your unfit to rent.
Step 11: Seek Out Help
Talking to a financial planner is not a bad idea if your situation isn’t 911. You can glean some advice on which accounts are best to tap during this hardship. And if you have a substantial amount of assets with one financial institution, you might even qualify for free advice.
Support groups for unemployed people can also be helpful, both psychologically and your job prospects. Some government job centers have job-retraining and grants available too.
Step 12: Avoid Desperation
Tapping into your 401(k) is not a good idea. You’ll have to pay taxes on the money plus a 10% early withdrawal penalty if you’re younger than 55.
Another thing should try to avoid is having to move. Some jobs take longer than others to replace. If you really need to lower costs, one way to get by is by renting out your home for the cost of the mortgage payment and move somewhere cheaper temporarily.
As a last resort, you can file for bankruptcy. Just know it’s not an easy process and not all debts will be dismissed. Your credit will be trashed for 10 years in the case of Chapter 7 bankruptcy.
Losing your job might seem like the end of the world. Just know that some very successful people have lost their jobs and bounced back — so will you.
To a richer life,
Editor, Rich Life Roadmap