Losing your job can be emotionally painful (weren’t you doing a good enough job?) and can throw your finances for a major curveball. How will you pay your bills? How long will this situation last?
Take a deep breath, and arm yourself with knowledge for financially surviving a layoff. Whether you’re going through this situation right now or are worried it might occur, you can likely make adjustments and you can make and tap resources to weather this challenge. It’s a phase to move through but not to define you. Read on to learn:
• How to budget when laid off
• How to file for unemployment benefits
• How to prioritize debt
• How to bring in income.
Preparing Financially for a Layoff
Unfortunately, layoffs seem to be a part of modern life. In the first nine months of 2023, there were more than 605,000 layoffs, which marked a 198% increase versus the year prior. That’s not heartening, but it’s a way of saying that if you are laid off, you are not alone, and it can also be wise to prepare financially for a layoff if you are currently employed.
Not having a steady income probably means you’ll have to figure out how to pay your bills when laid off. Until you find another stream of income, it’s important to keep your budget in order and learn to live within your means. Being financially prepared means having a clear understanding of what your expenses are so you can stay on track, especially with debt, if you have it. There are also resources you can access that may help with your cash flow during this difficult time.
Steps to Take to Prepare for a Layoff
Here are some smart moves that can help you be prepared and not panic if you do get laid off.
Start an Emergency Fund
A common strategy is to build up an emergency fund prior to an event like job loss. It’s a way of preparing for a layoff before it happens. An emergency or rainy day fund is typically a savings account that you’ve been adding to on a weekly or monthly basis. Having roughly three to six months’ (or more) worth of monthly expenses is helpful. That sum can tide you over at a moment of job loss and give you peace of mind.
• You may want to automate your savings and have a small amount ($25 can get the ball rolling) transferred from checking to savings every payday. Or have that amount direct-deposited into savings.
• The emergency fund should only be accessed for emergencies, as its name suggests. (No fair dipping into this kind of savings account when there’s an amazing sale at your favorite store.)
• If you have the opportunity to contribute more than usual (say, you receive a financial windfall, like a bonus or a tax refund), do boost your emergency savings because you never know when you will need to tap into that account.
Budget, Budget, Budget
If you have an inkling that your company is preparing to lay off some employees or if you lose your job, it’s wise to double-check your weekly budget. This means separating your necessary spending from your discretionary spending.
• Necessary expenses include things like rent or a mortgage, utilities, food, and health insurance. Don’t forget about minimum debt payments, such as student loan and credit card payments.
• Discretionary spending may include traveling, dining out, new clothes, and entertainment.
It can be helpful to focus on how much you need to spend each month for necessary expenses (some people refer to this as their monthly “nut.”) Make a list of these basic living expenses and see what they total. Then, pre-layoff, you’ll also see how much you can allocate for activities that you want to do. It’s probably not the best idea to spend every penny each month. You want to have extra money at the end of the month to put toward savings.
If and when a layoff hits, you’ll focus on necessities and minimize your discretionary spending (more details below). You can also tweak your budget when unemployed to, say, cut back on some long-term savings to get you through this moment.
File Unemployment Benefits
If you do lose your job, you may be able to qualify for unemployment benefits. This can get some funds flowing your way to help tide you over.
• Read the eligibility requirements to see if your situation aligns with the rules for unemployment. The eligibility requirements are likely to vary from state to state and may be determined on a case by case basis; payment amounts will vary as well.
• If you qualify, filing for unemployment benefits will allow you to receive payments if you are out of a job due to no fault of your own. (There is a possibility that those who are fired because they don’t meet job qualifications may receive funds as well.)
• Generally, to qualify for unemployment benefits, you should be able and available for work, as well as be looking for employment. Once you’ve determined your eligibility, you can file on your state’s official government office of unemployment compensation website. The site should give you guidance on when to expect benefits.
Ask About Severance Packages
Severance pay can be provided for employees after they are no longer employed at a company. Severance is based on the duration of employment, but your employer is not required to provide severance upon termination.
If you were terminated through no fault of your own, employers may pay, for example, two weeks of salary for each year of employment. Severance may also include health insurance benefits and even services to help you find a new job. These can be very helpful supports when you’ve lost your job.
Use Credit Cards Only for Emergencies
If you become unemployed, it’s wise to stop using credit cards to make purchases. Paying with your credit card creates debt that comes with high interest rates (currently more than 20%). At such high interest rates, debt can really snowball.
Also, when you are out of work, it can be challenging to pay an existing credit card balance. If you manage to pay the minimum balances of your credit card debt rather than paying in full every month, the credit card debt may cost you more over time since you also have to factor in added interest.
If you find yourself in this kind of a bind with credit card debt, take action. Consider a balance transfer credit card that offers no or very low interest rates for a period of time. Or speak with a debt counselor at a nonprofit organization like the National Foundation for Credit Counseling (NFCC).
Make Sure Emergency Funds Are in Order
Emergency funds, as mentioned above, are an important part of a financial plan and can be a lifesaver for someone who is unemployed. If you are in a situation where you unexpectedly don’t have a stream of income until you find another job, you’ll be more at ease if you have built up an emergency fund over time, as mentioned above.
In this case, you can dip into your emergency fund for mandatory expenses to fulfill your short-term needs. If you don’t have emergency funds, unemployment benefits become that much more important. Borrowing from a close friend or a family member might also be an option.
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Practical Tips for Saving Money After a Job Loss
Saving money after a layoff can certainly be difficult. You don’t have the usual cash infusion to pay your bills and buy groceries. That is why you need to proceed with caution and learn how to economize when you lose your job. Here are strategies for making ends meet during this difficult time.
Get Back on LinkedIn and Start Networking
If you’re job-hunting, Linkedin can be a great tool for networking. The platform is set up so you can find and interact with former colleagues, alumni from your college, and professionals at companies you aspire to work for.
• Start commenting on people’s Linkedin posts and have conversations with existing connections.
• Build up your profile so recruiters know your job history, your professional skills, and that you are looking for work. This can lead to job opportunities.
Prioritize and Negotiate Any Debts if Needed
Continuing to pay down debt while unemployed should still be a priority. One strategy to pursue is paying off debt that has the highest interest rate. Debt with higher interest rates cost more, so paying this off first will have you saving money in the long-term.
But “How can I pay down debt if I don’t have income?” you are probably wondering. One answer: Try to negotiate your debt. It can be possible to work with your credit card company to negotiate interest rates, payment amounts, and the terms on your credit card debt.
Avoid Luxuries Temporarily
Being unemployed can be a frightening experience. You no longer have a steady flow of income and may not feel financially prepared to weather short-term expenses. To ease this burden, work to eliminate spending on luxuries. Now might be a good moment to downsize streaming services and other subscriptions.
Also eyeball what expenses you have on the horizon: If you had booked a vacation house or a cruise for a few months down the line, it may make good financial sense to investigate getting a refund. That money could be allocated toward your everyday expenses as you job-hunt.
Look at Investments and Retirement
If you are temporarily out of a job, do your best to keep your hands off your retirement funds. You worked hard to save that money, and it’s there to fund a long-term financial goal. That said, some people do tap their retirement accounts as a last resort when unemployed.
When you withdraw from your retirement account before the age of 59 ½, you will incur a penalty tax. However, there are some cases where you may be able to withdraw funds when unemployed without paying this.
You may be able to set up what’s known as a substantially equal periodic payments (SEPP) over five years or until you hit age 59 ½, whichever is greater. However, if you do receive this kind of distribution, it will likely count as income and may therefore lower any unemployment benefits you may be receiving. Talk with your plan administrator to learn more.
Start a Side Hustle
You might consider starting a side hustle to bring in some extra cash while looking for full-time work. There are many ways to earn more money. You could rent out an extra bedroom in your home or apartment, sell unwanted items, drive for Uber or Lyft, or market your professional skills on online service platforms such as Fiverr or Upwork. These are viable avenues to get some money coming in until you lock down a new job.
Figuring out how to manage your finances when you are in between jobs can be stressful, but there are ways to prepare and then actions that can help you get by. Building and then tapping an emergency fund, accessing unemployment, and budgeting are some actions to take.
Also make sure your banking partner is making it easy and profitable for you to do business with them.
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How do you manage the emotional impact of getting laid off?
Getting laid off or fired from your job is a tough challenge. You may feel angry and ashamed. Acknowledge those feelings, and remind yourself that millions of others have navigated this situation. You are not alone. Also, taking action can foster feelings of control and personal agency. Updating your resume, networking, reworking your budget, and engaging in self care rituals (like exercise) may also be positive steps.
How do you recover after being laid off?
Recognize the shock and upsetting feelings that you are likely experiencing. Then, take steps to improve your situation: Seek unemployment benefits, apply for jobs, start a side hustle, cut some expenses, and perhaps volunteer to build new skills and fill free time. These moves can help you move forward from your job loss.
Is it better to be fired or laid off?
In both scenarios, you don’t have a job, but if you are fired, it is typically due to a performance issue. With a layoff, you will likely be able to file for unemployment and you may receive severance pay from your employer. When you are fired, you may or may not be able to receive unemployment funds and you will probably not be eligible for severance.
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