When you are out of work, it can be difficult to navigate this new financial reality. It’s a surprisingly common occurrence, however: In a recent month, 1.3 million employees lost their jobs permanently and more than 827,000 endured a temporary layoff.
It’s easy to feel stressed since there’s uncertainty around where and when you will find a new source of income. The thoughts that are running through your mind may include: How can you survive without a job? How will you pay your bills? How long will this situation last?
Take a deep breath, and arm yourself with knowledge. When and if unemployment becomes a reality, there are likely adjustments you can make and resources you can tap to weather this temporary challenge. 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
Not having a steady income after a layoff can increase anxiety about how you’ll pay your daily expenses. 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.
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. Think of it as a form of financial self care.
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, 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 know what your budget is. This means separating your necessary spending from your discretionary spending. Necessary expenses include things like rent or a mortgage, utilities, food, and health insurance. 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 saving for the long-term. Knowing your budget is the ideal starting point for how to manage your mandatory and discretionary expenses.
Then, if and when a layoff hits, you’ll be aware of what it will cost to keep your basics up and running. Obviously, you will be focusing on necessities and minimizing your discretionary spending (more details below). You can tweak your budget when you’re unemployed to, say, cut back on some long-term savings to get you through this current time when money is tight.
Filing Unemployment Benefits
If you 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 until you land a new job. First, 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.
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. The job search should entail reaching out to at least two potential employers on a weekly basis. Keep a list of which job prospects you reached out to because the department of employment services may ask you to provide these details. If you quit your job, you are probably not eligible for unemployment benefits.
Once you’ve determined your eligibility, it’s time to file. This can be done at your state’s official government office of unemployment compensation website. To get started, have personal information ready, including your Social Security number, home address, phone number, email, and direct deposit bank information. You will also need to provide your former employer’s information and the reason for leaving. The site should give you guidance on when to expect benefits.
Asking 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 have lost your job.
Using Credit Cards 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 (often approaching 20%), making them one of the least economical payment methods when unemployed. 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. Furthermore, 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 transferring your balance to a card that offers no or very low interest rates for a period of time or speaking with a debt counselor from a nonprofit organization like the National Foundation for Credit Counseling (NFCC).
Making Sure Emergency Funds Are in Order
Emergency funds 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. An emergency fund is for unplanned life events and is the exact life line you need in a scenario where you are laid off. 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. You can gradually build your network by connecting with professionals in your industry. 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. These steps can lead to job opportunities.
Prioritizing and Negotiating 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. This might also include adjusting a payment date or requesting a temporary payment reduction. Have a conversation with your credit card company to see which options may be available for you.
Avoiding 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. You may feel as if you need a pick-me-up, but it’s best not to go for a massage or a nice meal out. That can wait until you have cash coming in. 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.
Looking 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.
Getting 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.
Managing Finances With SoFi
Figuring out how to manage your finances when you are in between jobs can be stressful and overwhelming. But the best way to get through it is by preparing way before you’re in that position.
A smart step is to open an online bank account to save emergency funds ASAP. At SoFi, we make this easy and help your money grow super fast. When you open our Checking and Savings with direct deposit, you’ll earn a competitive APY, and your money won’t be eaten up by account fees because you don’t pay any!
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 are navigating 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. That means you weren’t able to do the work as needed. Financially speaking, 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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