Top 5 Financial Moves to Make When You’re Suddenly Laid Off

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Financial Moves When You're Laid Off
When you’re suddenly laid off, one of your first concerns is probably how you’re going to financially survive the storm until you find another job. It’s a huge fear—starting over. But, there are things that you can do to lessen the blow and get back on your feet as soon as possible. The following are…

When you’re suddenly laid off, one of your first concerns is probably how you’re going to financially survive the storm until you find another job. It’s a huge fear—starting over. But, there are things that you can do to lessen the blow and get back on your feet as soon as possible.

The following are some steps to take immediately after you’re laid off. These actions can help you cope with the temporary loss of income. The sooner you can get over the shock and start working on these action items, the sooner you can get back to your normal life.

Financial Moves When You're Laid Off

Apply for Unemployment Benefits

First things first: apply for unemployment benefits right away. Depending on which state you live in, the qualification criteria for unemployment may vary. But, you usually have to be completely unemployed or demoted to part-time status, in a position to look for more work, and have worked in the past 12-18 months in order to file for unemployment benefits.

If you have received a severance package, then your benefits likely won’t start until after your last paycheck. However, it’s important to apply for unemployment benefits sooner rather than later to get the application process started and out of the way. It will be one less thing you have to worry about after you leave your job. And in many states, you have many options when it comes to applying for unemployment benefits, whether it’s purely online, over the phone, or by mail.

The unemployment offices in your state will require extensive documentation to determine your eligibility. They will look at things like your employment history from the past 12-18 months including gross pay amounts, outside income, and other personal information. So, make sure you have everything ready before you apply to speed up the process.

It seems like this would be a no-brainer. But, you shouldn’t put it off. You paid taxes. Your former employer paid for the insurance. You might as well take advantage of every government program that you’re entitled to use.

Manage Your Own Health Insurance

If your employer previously covered your health insurance, then check with your HR department as soon as possible regarding your coverage status after your employment with the company ends. In some cases, there will be a grace period to give you more time to seek out alternative health care options.

During this time, you can either ask your spouse if their employer will cover you and your family, apply for Medicaid if your family has little or no other sources of income, or acquire insurance through your state’s Affordable Care Act platform.

Even if you lose your job outside of the open enrollment period, you could qualify for health insurance during a special enrollment period, which is designated for individuals and families who have a baby, adopt a kid, get married, lose a job, or move to another state.

Assess Your Financial Situation

Once you’ve filled out an application for unemployment and figured out your new health care situation, the next crucial step is figuring out how to navigate this temporary period of limited income.

Don’t Panic – Analyze Your New Financial Situation

Panicking will not solve the problem. Instead, ask yourself how much money are you now bringing in? Did any new expenses arise, such as loss of employer-provided housing, food, or health care? Are you saving money now with lower commuting, eating out, or daycare costs?

Sit down for an hour or two and assess your financial situation. Consider these questions:

  • How much liquid cash do you have currently in checking and savings accounts in an emergency fund or in a savings account? You can also earn free money from opening a Chase Online checking account! Check out checking for details.
  • What payments do you have coming up that can’t be covered potentially with a credit card?
  • What areas of your budget can you cut back on? Can you suspend gym membership, cut back on eating out, hold off on any big purchases, and cut other luxury items from your budget?
  • What are your current credit card balances? Can you make the minimum payment or more on them? Which credit card has the lowest interest rate? You may need to rely on this one to cover expenses if you don’t have the cash to cover everything, at least for a little while.
  • Is there a low-interest rate credit card that you can consolidate your others onto just for the time being until you get back on your feet?

You may have to cut back on spending and carry a higher balance on your credit cards. But, remember that this is only temporary and doing regular budget check-ups will help you stay afloat.

Stop spending immediately after you are laid off. Reexamine your spending. There will be a time where you need to tighten your belt. Now is the time that you should reassess your family’s monthly budget.

Update Your Budget Based on Your New Situation

If your new income still covers your expenses, you might be just fine. If it does not cover your expenses or is extremely close, you will need to look for ways to trim expenses from your budget. Here are some tips to help you out:

Separate wants from needs: You need shelter, food, health insurance, and some form of transportation. You do not need a mansion, steak and lobster for dinner, or a $400/mo. vehicle payment. Before you buy something, ask yourself if you really need it, or if you want it?

Cut expenses and save money: Use coupons, buy items on sale, change your thermostat setting to save energy costs, combine trips to save gas, reuse or repair items instead of buying new, buy generic items when appropriate, and consider canceling subscriptions such as cable, Netflix, and magazines. There are many other ways to trim costs from your budget. Even small changes can add up to generate real savings.

Talk to your creditors: Your creditors may grant you an extension on certain loans, or possibly reduce your interest rates. It never hurts to ask.

Look for Other Sources of Income

If you need to take a lower paying job, or even one or more part-time jobs to make ends meet – do it. You can also earn money by selling unused items on eBay or Craigslist. At this point, earning some money is better than earning none at all. Other sources of help:

Network: Talk to family, friends, former co-workers, etc. They may know of current job openings or may be willing to act as a reference if you apply for another job. Connect with people in LinkedIn. Your family and friends may also know of other ways that can help you in your new situation.

Update Your Resume and begin a job search: Make sure your resume reflects your current skills and your past and current duties. You can look for a job through your network, local temp agencies, job fairs, classified ads, and online job search engines such as Career Builder, Yahoo Jobs, Monster, etc. Job searching is almost a full-time job, so be patient and put forth your best effort.

Tap your emergency fund if necessary: Everyone needs an emergency fund, and a sudden decrease in income is a good reason why. Keep in mind, an emergency fund should be used for emergencies, and not to maintain a standard of living above your new means. Food, housing, medical insurance, or new brakes for your car qualify as expenses you should use your emergency fund on. Cable, or a new Prada purse – no.

Look to Others for Help

There is no shame in asking for help when you need it. Again, your network of family and friends may be able to help you through this time. Beyond friends and family, there are other places you can go:

Social services: You may be eligible for unemployment, welfare, food stamps, Medicaid, or other services. These may not be enough to live on, but they should help you bridge the gap. The rules for many of these social services vary by state, so I recommend checking with your state for more details.

Visit your church: Many churches have food pantries and other services to help people through hard times. Your local church leaders will welcome you with open arms.

Navigate Your Retirement Account Options

If you had a 401(k) through your employer, then deciding what to do about your retirement fund is another important task to tackle when you’re laid off. If you want to control your retirement fund, then you may want to consider either an early withdraw, which is subject to early withdrawal penalties if you’re younger than 55 or roll it over into an IRA account. Typically, it is best to move your 401(k) retirement account away from your employer’s plan into your new plan or a Traditional IRA that you can manage closely yourself.

An IRA account might be preferable if you’re no longer with the company because it’ll give you more control over your investments and your company may have unfavorable policies for former employees. Be sure to check with your HR department for more details on how 401(k) retirement plans are managed for former employees.

For example, you will most likely not be able to add to your plan once you have left your employer. If you are hesitant on your next move, you can always leave your account with your former employer for the time being. Look to move the 401k plan as soon as you land your next job.

3 Strategies for Getting Your Career Back on Track

While you’re sorting through your finances and waiting for unemployment, looking for jobs is a productive way to spend your time. Whether you’re interested in landing a full-time, career-oriented job or a few freelance, part-time jobs right away, there’s nothing wrong with jumping on job boards and applying for jobs immediately. Do not forget to let all of your friends and family know that you are on the job hunt and on the market again. You never know where your next job opportunity will come from.

You might also want to reach out to folks on your LinkedIn network to see if their companies are hiring. The best way to get your foot in the door in a competitive job market is who you know, not what you know. So give it a shot! What do you have to lose?

Losing your job is not a great experience. But, careful planning can make an unexpected layoff feel more like a mere bump in the road instead of a life-changing loss. As long as you cover your bases with your HR department and reduce your expenses while living on a limited income, you can and will be able to find financial stability, even after a layoff.

Here are three fundamental strategies that can help you survive unemployment, under-employment, or loss of income in your own business:

Crisis Strategy #1: Leverage Your Job Search

It might seem obvious that the answer to not having enough money is to earn more of it, but sometimes people just don’t know how. The fastest path to cash is always the one to explore first—assuming it’s legal or ethical, of course.

If you’re unemployed, tap into several local employment agencies. When I was a hiring manager, the only sources for job applicants that I used were personal references from people I trusted and employment agencies. Agencies are paid by the hiring company, so applicants never have to pay fees. Different agencies will specialize in different types of industries and jobs, so make appointments to interview with as many as possible to see which ones are a good fit for the skills you have.

Agencies need to fill full-time jobs as well as a variety of assignments that are part-time, contract, seasonal, or project-based, which can put money in your pocket right now and add something new to your resume. Some employment agencies even offer a menu of insurance benefits while you’re working their jobs.

Crisis Strategy #2: Increase Your Level of Responsibility

If you’re under-employed or are employed but still not earning enough, have a candid conversation with your boss about how to earn more. Let him or her know that you’re willing to take on more responsibilities in order to demonstrate your competence for a raise or promotion.

Don’t go into a meeting about compensation with the attitude that “the man” is holding you down and owes you anything. You have to prove to “the man” that you’re worth more by consistently outperforming your coworkers and exceeding expectations before management will have the chance to notice your talents and abilities. Have specific suggestions for your boss about projects that you could lead that would boost the company’s profitability by making more money, saving more money, or doing both.

Think about your job from the perspective of the company owner(s) or shareholders. If you’re not doing something that ultimately makes the company money, you’d better be making quantum leaps to save it money. When you add enough to the company’s bottom line to pay for yourself, that’s when management will see you as a valuable employee who deserves to be paid more and promoted up the company ladder.

Crisis Strategy #3: Solve More Business Problems

If you’re self-employed or run a small business that’s suffering, do some brainstorming about how to solve more problems for your current customers. For example, if you have a pool cleaning business, perhaps you could also start doing lawn maintenance or offer exterior pressure washing services for your existing clients. Or you could network with complementary businesses to find out which of their customers have pools that you could serve. Sharing leads gives you a whole new market of customers to tap for additional revenue.

Another great way to bring in more business is to beat your competition by offering something free or by providing more value for less money. Giving something extra or offering a free bonus can be what attracts a customer to you. Then the goal is to over-deliver on what you promised, so you create fans that will recommend you to their personal and business network.

If you have a regular job, consider starting your own business on the side to make extra money. People are willing to pay for all kinds of services like tutoring, house-sitting, animal care, yard maintenance, music lessons, cooking, cleaning, computer work, painting, and car detailing, just to name a few. To get more tips about how to create extra sources of income that can pick up slack in your budget, pay down debt, and give you an automatic safety net in case you unexpectedly lose your job, be sure to read “How to Earn a Second Source of Income.”

Keep Your Spirits Up

Dealing with unemployment or a decrease in income can be very stressful. I have gone through a period of unemployment, and it is not easy. Thankfully I had wonderful family and friends who were supportive. Again, this is where reaching out to your network and church can make all the difference in the world.

If you are not able to prepare in advance for a drastic drop in income, I hope this guide will help you to better deal with your new situation.

Related Post: How We Manage Our Money on a Daily Basis

Have you ever experienced an unexpected layoff? What did you do to get back on your feet quickly? What were some of the steps you took to tighten your belt and shore up your family’s budget?

Laura Adams contributed to this article.

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About Hank Coleman

Hank Coleman is a personal finance writer and the publisher of Money Q&A, where he writes about investing, retirement, and budgeting tips. Be sure to connect with Hank on Twitter @MoneyQandA and on Facebook.

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  1. Simon L says

    It actually happened to me and I started my own business. With the money I got as a compensation for that unexpected reaction of that company I used to worked for, I opened a coffee shop . Saved part of the money (which i invest it myself) and the rest of the time im in one of the shops (now I have 2 coffee shops in town). Im very happy now, but dealing with all the process was a bit stresfull.

  2. SB@OCAAT says

    Assessing your financial situation is important when you’re laid off. It involves identifying your financial weaknesses and strengths is crucial besides learning more on managing your finances. You must take your payables and receivables into account while creating an effective budgeting strategy.

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