Do you have a Plan B in place if you were to lose your job?
Several years ago, a friend of mine lost his job of 10 years when the owner sold the company and the buyer stripped it down by laying off 95% of the employees.
It took him 7 months to find a job, and the only job he could find was outside of his normal career field.
It was a very eye-opening experience, and I know he is not alone. Unemployment is high, and if it doesn’t touch you directly, chances are it will affect someone you know.
My friend’s recent experience got me thinking more about our plans and what I would do in his situation.
Read on to see my financial fallback plan and my best advice for landing another job in the event that you lose yours.
First things first, let’s take a look at what I would do to stay afloat financially:
Our Financial Fallback Plan
Big changes coming for our financial situation. Before I talk about our fallback plan, I need to explain where we are financially.
When I originally wrote this article, my wife and I were going through a huge life change – we were expecting our first child. This was an exciting time for us, and even though the economy was bad, we decided it would be best if my wife quit her job to be a stay-at-home mom.
We have been planning this decision for a long time.
First, we made some changes in our employment situation that resulted in less income, but a better quality of life. We prepared for almost a year to reach that point, then it was another year before we were expecting our first child.
During that time, almost two years, we took some steps to secure ourselves financially:
- I started a blog which earns us side income.
- We eliminated all debt outside of our mortgage.
- We have been living on only one salary and budgeting accordingly.
- The rest of the money we earned went into our retirement accounts and into cash savings. We have over a year’s worth of savings set aside, so I’m not worried about the short term.
What’s the long-term financial outlook?
Long term, things could be different. After we have our first child, I will be the sole earner for our family.
I have a job as a government contractor that is fairly secure which pays fairly well. In addition, I have a few websites and other online interests with which I earn a fair amount of money (but not full-time income for a family of 3).
As long as life continues as is, then I am confident we will be fine.
However, in our economy, we all know that things can change in the blink of an eye, so having a plan in case it changes for the worse is key.
How I Would Deal With Unemployment
Worst case scenario – unexpected job loss. The worst case scenario would be that I would unexpectedly lose my job. Once my wife resigns from her job in a couple months, we will rely on my job as our main source of income and for our benefits.
Health insurance is expensive, and COBRA coverage would likely be our best option – probably costing around $1,000 per month.
Health insurance coverage is a big reason why losing your job is such a bad situation – your fixed costs spike while your income drops.
I can’t file for unemployment because I earn money from my small business. Since it isn’t an option for me, I would need to start looking for a job immediately and tap into my professional network.
Our fallback plan. Our fallback plan calls for me looking for a full-time job and hopefully doing job interviews while continuing to work on my small business, as well as looking for ways to increase revenues.
As I mentioned earlier, we have a large emergency fund.
But if our savings dwindled too low, my wife could always go back to work and I could stay at home and raise our child while continuing to earn money from my small business. My wife works in the nursing field, and nurses are almost always in demand, so we feel fairly confident that we would be able to get by.
With some flexibility and willingness to diverge from your plans, you can successfully bounce back from a job loss.
We are financially secure – for now
My wife and I feel confident about our current financial situation, but we are well aware that our lives could change quickly. Having a plan in place, though, gives us peace of mind.
Up to this point, I’ve been discussing what my wife and I would do hypothetically if I lost my job.
But I’m going to switch gears now and talk about my real life job loss and how I used knowing I would lose my job to my advantage.
What to Do When You Know You Will Lose Your Job
Losing your job is no fun.
My situation was a little different than many people who experience unemployment, as I was transitioning from an active duty military position and looking for a job in the civilian sector.
Even though it was difficult to be out of work for six months, I felt as though I had an advantage when I entered into unemployment – I knew it was coming.
Now don’t get me wrong, being out of work for six months is tough – I wanted to work, but I couldn’t find a job. It takes an emotional toll on the person who is unemployed and in some cases, finding a job can be more difficult the longer you are out of work.
Not everyone has the luxury of knowing when they will lose their job, but many people actually do have the knowledge they will soon be out of work – and I want to help you prepare for that event.
Whether your job is being downsized, your contract is about to end, or you are voluntarily leaving your position for something else, you need a plan.
Let’s look at job loss in the order of how it affects us and then decide the order in which we should address these issues: financially, professionally, and emotionally.
Financial and Professional Effects of Job Loss
Your financial outlook is one of the most important things to consider when you know you will be losing your job – after all, the reason most people work is to earn money.
Equally important to getting your finances in order is finding your next job.
Read on for the best tips for reviewing and improving your financial plan and securing a new job.
- File for unemployment benefits. These benefits can help provide financial relief when you lose your job, but keep in mind most people aren’t able to live on unemployment benefits for long before their finances crumble.
- Build up your emergency fund. Your emergency fund will likely come into play while you are searching for a new job, so you should make it a priority to save as much money as you can over the next few months.
Consider how you might build up a financial cushion in the form of an emergency fund by setting aside money each paycheck in a high yield savings account.
Like unemployment benefits, your emergency fund is unlikely to last forever.
- Consider discontinuing contributions to your retirement plan. If you have several months to plan for your job transition, you might want to stop making contributions to your 401k or other retirement plans so you can save money for your transitional period.
Most people wouldn’t recommend halting retirement contributions, but it’s all about priorities:
It doesn’t make sense to save money for retirement if it means you will go into debt while you are looking for a job.
- Reevaluate your fixed expenses. Living modestly and within your means will ensure that you have fewer expenses to meet if you lose your job.
It means making less of an adjustment in the future because you are already adapting right now.
Even if you decide that drastically cutting expenses is not necessary at this point, you can still make a list of items to cut so that you are prepared in the event of a job loss.
For example, go line by line through your budget and determine if there are any areas where you can cut back to save some money each month.
Many people can easily strip $100 or $200 from their monthly expenses by making small sacrifices.
- Refinance your loans. You may find it easier to refinance loans while you are employed – which could be as big as refinancing your home, saving you hundreds of dollars per year in interest costs, or using 0% balance transfer credit cards to reduce your credit card interest rate to 0%.
- Update your resume. Having an up to date resume will make it easier for you to start your job search without delay.
It’s a good idea to update your resume at least every 6 months, or with any major change in job title, role, or each time you gain a new qualification.
- Start your job search immediately. You don’t need to wait until you don’t have a job until you begin searching for a new one.
In fact, sometimes the best time to find a job is when you already have one. It can also become increasingly more difficult to find a job the longer you are without one.
Starting your search as soon as you know you will lose your current job can help you make the transition with little personal interruption.
It can also get you a leg up on the competition – especially if you will be part of a mass lay off in your industry or region and there will be a lot of competition for jobs.
- Develop Income Diversity. Is all of your income from one place?
If so, it might be a good idea to begin developing a little income diversity.
Consider starting a side business with a hobby as a basis, or setting up a website that can generate affiliate income.
If you are really worried about the stability of your day job, you or your partner can consider getting a part-time job.
You might also consider income investing as a way to begin developing a little income diversity.
While you may not be making a ton of money from these other sources each month, they can establish income streams that can help cushion you if you lose your regular job.
And, as long as you have a job, you can use the extra income to pad your emergency fund!
- Nurture your network. Your professional network can be an invaluable source for finding a new job if you suddenly find yourself without one.
It’s a good idea to join professional associations, participate in trade shows and events, attend social functions, and otherwise get to know people inside your industry.
- Keep yourself marketable. In addition to keeping your contacts fresh, you need to stay up to date on the skills you need for your profession.
Consider developing new skills that might serve you well if you need to switch jobs, enrolling in courses or using your newfound downtime to fine tune your skills.
Periodically update your resume, adding any new qualifications, promotions, credentials or titles to it as they emerge, and do what you can to keep yourself valuable to your current employer.
Emotional Effects of Job Loss
You can prepare financially and professionally for losing your job. But in my opinion, it is more difficult to prepare emotionally, especially if you are used to being the “go-to person” at your job.
Even if you don’t associate your job with your identity, you may find it difficult to transition from a role of responsibility to an undefined role.
The biggest issue I had when I was unemployed was going from the responsibility I had in the military to having no responsibility at all.
And it was tough.
My recommendation is to create a schedule for yourself and stick to it so you maintain an order and discipline in your life, which will make it easier to get back into the swing of things when you do find your job.
I found it helpful to get up every morning at the same time and work a few hours on searching for jobs, updating my resume for each position I was applying for.
Other tips which might be helpful include volunteering, working a part-time job, taking classes or working toward a certification, or attending job fairs and networking events.
The key is to remain proactive and positive.
Losing your job is never easy, but with a concrete plan in place, you can rest assured knowing you’ll be prepared for the worst.
Whether you’re a conscientious planner looking for peace of mind or just got the disappointing news that you’ll be losing your job soon, the tips above can help you to prepare for the financial, professional, and emotional impact of your job transition.
Being smart, realistic, and proactive, you can make your period of unemployment shorter and easier.
Start planning now!