The day might have started off as any other day of the week. You arrived at work, completed your assignments and now you’re ready to head home. But if your boss blocks your exit from the building and asks to speak with you privately in his office, it can’t be good news. This scenario plays out every day somewhere in the corporate world, and it usually ends with a pink slip.
Unless you absolutely hate your job and have a huge bankroll to compensate for the loss of income, there is nothing fun about a layoff. You might immediately panic and question how you’ll pay your mortgage, auto loan, student loan, buy groceries or fuel your car. While these are valid worries, it’s important that you don’t panic. You can’t change the situation. But the sooner you pull yourself together, the quicker you can make moves to remain financially afloat until you find other employment.
Have you recently lost your job? Here are five money moves to make immediately after a job loss.
1. Apply for unemployment compensation.
Contact your State Unemployment Insurance Office for specific information on how to file a claim, and to see if you qualify for benefits. It can take two to three weeks to receive your first check. Therefore, the sooner you apply the better. Unemployment compensation is only a percentage of your regular weekly earnings, but far better than no income. You’ll need to provide basic information, such as your Social Security number and a list of your previous employers and their addresses. This compensation can help cover your housing and other living expenses, thus limiting the amount you need to withdraw from your personal savings.
2. Ask about health insurance.
Losing your job goes hand-in-hand with losing your health benefits, but there are ways to maintain your coverage after a job loss. Money is already tight following a layoff. And the last thing you need is a major medical expense. Your employer isn’t going to flip the bill for your health insurance once you’re laid off, but if you’re eligible for COBRA (a federal insurance program); you can continue your health coverage and pay the premiums yourself.
Do you have a spouse that works full-time? If he or she is eligible for health insurance, perhaps you can enroll in the company’s group plan. Additionally, you may be eligible for other state health insurance programs. Contact your State Department of Health for additional information.
3. Cut your living expenses.
It can take six months or longer to find new employment, and if you want to keep your head above water, you have to reduce your expenditures. Seriously evaluate how you spend your money. Check your bank receipts and credit card receipts from the previous months. Where can you cut back? Do you shop needlessly, go out to eat several times a week or have expanded cable services? Do you hire a lawn care company or a housekeeping service? These seemingly routine expenses can add up quickly and cut into your disposable income. A lifestyle change is inevitable after a job loss. And the more you trim from your budget, the more cash you will have for the important things, such as your rent or mortgage.
4. Consider your 401(k) options.
If you took advantage of a retirement plan sponsored by your past employer, there are options available to you after a layoff. You can cash out the money and use funds to pay off debt and cover living expenses until you find new employment. But unfortunately, this option comes with a hefty fee. If you find employment shortly after a layoff, you can roll this money into a new 401(k). Another option: roll your 401(k) into an individual retirement account (IRA). Open an IRA account with a bank or brokerage firm and your money will continue to grow while you’re unemployed.
5. Defer payments to creditors.
A job loss is one of the fastest ways to ruin your credit. If there’s less income coming into your house, there’s less money to pay your creditors. In turn, you might pay bills late or skip payments altogether.
Don’t let an immediate problem impact your long-term future. Credit scores are not easy to repair. It only takes a few months of missed payments to kill your perfect score, and you can spend the next year repairing the damage. There is a better solution.
Notify creditors of your job situation. Many banks have hardship programs, and if you are eligible, they may defer or lower your payment for up to one year. This provision is not heavily advertised, but offered by mortgage lenders, auto lenders, student loan lenders and credit card companies. Ideally, you want to request help before you’ve missed a payment. A good payment record may sway a lender in your direction.