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Whether you've been laid off or fired, losing a job is never easy. It takes an emotional toll, and on top of that, you’re left with the challenge of managing your finances. Here are the essential financial actions you need to take when facing job loss.
Establish an Emergency Budget
You’re likely familiar with the concept of an emergency fund. Recently, when we discussed emergency funds, one reader introduced the idea of creating an emergency budget.
An emergency budget is a financial plan designed to minimize spending when money is tight, such as after losing your job. This budget helps reduce the amount you need to draw from your emergency fund.
We've already covered how to adjust your budget when your income takes a hit. Here are the fundamental steps:
Trim your budget and eliminate unnecessary expenses: Identify recurring expenses that you can cut from your budget, especially large ones. Be practical, though; the goal is not to overextend yourself to the point where you set yourself up for failure.
Reduce your monthly bills: Go through your monthly bills and see if there are opportunities to lower them. Consider switching to a more affordable phone plan, canceling your cable subscription, or negotiating better rates with your service providers.
It can also help to evaluate your possessions and sell things you no longer need. If you have a side hustle, think about boosting it. You could also explore part-time opportunities to bring in some income while searching for a new job. The goal is to avoid dipping into your emergency fund if possible.
Seek Assistance from Your Employer
It can be difficult to ask for help when you're feeling rejected. After being fired, it's natural to feel resentful and cynical towards your employer. However, if you can set those feelings aside, they may be willing to assist you, especially if your termination is part of a layoff.
Redbook recommends asking for the following:
A delayed termination date: If possible, try to negotiate for a later termination date. Highlight any ongoing projects and persuade your employer that they need to be completed. This extra time could allow you to search for a new job or at least prepare financially for the change.
Severance pay: As legal expert Alan L. Sklover tells Redbook, while severance pay isn't required by law, many companies offer two weeks of severance. Depending on your length of employment, you may be able to negotiate for more.
Vacation day compensation: If you have unused vacation days, consider asking for compensation for them.
A different position: If you’re open to it, you could request a different role or a part-time position in another department. While this is a long shot, it could allow you to stay with the company if their needs change, providing at least some income while you continue your job search.
A letter of recommendation: If you’ve been a valuable asset to the company, ask your employer for a letter of recommendation or, at the very least, to connect you with other professionals who can vouch for your work.
Reach Out to Your Creditors
Whether it’s your credit card, mortgage, or student loans, if you suspect you might miss a payment, it's important to contact your creditor immediately.
Lawyers.com offers several potential solutions:
Pausing your payments for a few months
Making reduced payments for a brief period
Refinancing your loans
They also suggest that creditors may be more inclined to assist you if you reach out before missing any payments. For instance, if you've lost your income, contact your mortgage officer and inform them of your situation. They may let you delay a few payments or even make interest-only payments temporarily.
If you're managing a credit card debt, call the company and try negotiating for a lower interest rate. Here’s a script that can guide you in that conversation.
Check if You’re Eligible for Assistance
Check if you’re eligible for unemployment benefits by visiting the Department of Labor's CareerOneStop website. Select your state and review the eligibility criteria.
If you’re facing significant hardships, you might also be eligible for additional programs:
Supplemental Nutrition Assistance Program (SNAP)
Medicaid
Student loan assistance
Additionally, check out our article on the key things you should know about these benefits.
Review Your Insurance Options
It’s essential to maintain health insurance, so understanding how your coverage will change when you're unemployed is crucial. Here are some options that might be available to you.
COBRA
If you were previously covered by your employer’s health plan and were let go, you’re likely eligible to continue your coverage under COBRA. However, you will still be responsible for paying the premium.
Your Spouse's Plan
If COBRA premiums are unaffordable and you're married, check the cost of being added to your spouse's health insurance plan.
Group Health Insurance
If you're part of a professional group, you may qualify for group health coverage. About.com provides guidance on how to explore this option:
Consider the membership groups you're already part of. Unions, alumni associations, and local professional organizations like your chamber of commerce are good starting points... Next, try searching online for "membership organizations" or "membership benefits health insurance." This should lead you to a variety of organizations that may be available. Browse through those you're interested in or think you may be eligible for. Once you find a few possibilities, check the benefits section to see if they offer health insurance.
Medicaid or CHIP
Eligibility for these programs is fairly specific, but you may qualify for health insurance through Medicaid. Additionally, children (and sometimes pregnant women) can receive coverage through the Children's Health Insurance Program (CHIP). Visit the website to determine if you qualify.
Private Health Insurance
You can also explore individual insurance options from companies like Blue Shield. However, this may not be the most affordable choice and may not be ideal if you're planning on securing another full-time job in the near future.
Health Insurance Marketplace
If you're ineligible for assistance and can't afford private insurance premiums, consider looking into an "Affordable Care Act plan" through the insurance exchanges marketplace.
Prepare for Your 401(k) Rollover
If you had a 401(k) at your previous job, don’t just leave it behind. Take some time to think about what you want to do with it. You can leave it as is, but if you’re not receiving any employer contributions, rolling it over into an IRA might be a better option.
401(k) plans often come with high fees and limited investment choices. For more details, check out our primer on 401(k)s. Alan Henry has also written a guide on rolling over your 401(k) to help you get started.
Losing a job can be a tough and disheartening experience. However, organizing your budget and finances afterward can help lighten the load, even if just a little.
