A Comprehensive Guide to Managing Money After a Layoff
Losing a job can be an emotionally and financially turbulent experience, leaving you adrift in uncharted waters. This guide will teach you how to deal with challenges that come after losing your job. It will help you become stronger and more prepared for the future.
Prioritizing Your Financial Health
When faced with a layoff, it’s natural to feel overwhelmed and uncertain about your next steps. However, by prioritizing your financial well-being, you can create a solid foundation for weathering the storm. Start by taking a deep breath and assessing your current financial situation objectively.
Evaluate Your Assets and Liabilities
Begin by creating a comprehensive list of your assets, including savings accounts, investments, and any other sources of income. Next, identify your liabilities, such as outstanding debts, mortgages, or loans. This holistic view will help you understand your financial standing and make informed decisions moving forward.
Categorize Your Expenses
Separate your expenses into essential and non-essential categories. Essential expenses include housing, utilities, food, and healthcare, while non-essential expenses may include subscriptions, entertainment, and luxury items. By prioritizing essential expenses, you can ensure that you meet your basic needs, even during periods of financial uncertainty.
Establish a Temporary Budget
Based on your income and expense assessment, create a temporary budget that focuses on essential expenses. This budget should be simple and useful for managing your money until you find a new source of income. Remember, this is a temporary measure, and you can adjust your budget as your circumstances change.
Accessing Financial Assistance
During a layoff, it’s crucial to explore all available financial assistance options to help you stay afloat. These resources can provide a much-needed lifeline as you navigate the transition.
Apply for Unemployment Benefits
One of the first steps you should take after a layoff is to file for unemployment benefits. These benefits are designed to provide a temporary financial cushion while you search for new employment. Each state has its own eligibility criteria and application process, so familiarize yourself with the requirements in your area.
Negotiate Your Severance Package
If your former employer offers a severance package, don’t hesitate to negotiate the terms. Severance packages can include various components, such as extended health insurance coverage, accelerated vesting of stock options, or additional cash payments. Consult with an employment lawyer or a valued advisor to ensure you receive fair compensation.
Explore Community Resources
Many communities offer a wide range of resources to support individuals and families facing financial hardships. These resources can include food banks, utility assistance programs, and job search support services. Leverage these resources to alleviate some of the financial burdens during your transition.
Managing Healthcare Coverage
Losing employer-sponsored health insurance can be a significant concern during a layoff. Fortunately, several options are available to ensure you and your family maintain adequate healthcare coverage.
COBRA Continuation Coverage
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to temporarily extend your employer-sponsored health insurance coverage after a layoff. This option can be expensive because you’ll be responsible for the entire premium cost. However, it might be one of the best options if you need medical care often or want to keep seeing your current healthcare providers.
Marketplace Health Insurance
The Affordable Care Act (ACA) Marketplace offers a range of health insurance plans that you can enroll in during a special enrollment period, triggered by a qualifying life event, such as a job loss. You might qualify for subsidies or tax credits based on your income to help lower the cost of premiums.
Medicaid and Medicare
If your income falls below a certain threshold after a layoff, you may qualify for Medicaid, a government-funded healthcare program. Additionally, if you’re 65 or older, you may be eligible for Medicare, which provides healthcare coverage for seniors.
Managing Retirement Accounts
If you get laid off, you may wonder what to do with your 401(k) or IRA. Understanding your options and making informed decisions is essential to avoid potential penalties or tax implications. If you are not sure what to do with 401k after your layoff, see below for available options.
401(k) Rollover Options
If you have a 401(k) plan from your former employer, you have several options:
- Roll over the account balance into an IRA
- Roll over the account balance into a new employer’s 401(k) plan: If you secure a new job, you can transfer your existing 401(k) balance into your new employer’s plan.
- Leave your 401(k) with your former employer: Some employers may allow you to keep your employer sponsored retirement plan such as a 401(k) with them.
- Cash out your 401(k) as a lump sum distribution
Individual Retirement Account (IRA) Considerations
If you have an IRA, you can continue to contribute money to it. You also have the option to transfer funds from a 401(k) into the IRA. You can roll over your old 401(k) to the IRA as well. However, be mindful of the rules and potential tax implications of withdrawing funds from an IRA before retirement age.
You have 60 days to avoid income taxes and penalties to roll over an IRA. The 60-day starts from when you receive an IRA distribution to transfer it to another IRA or retirement plan.
Exploring Alternative Income Streams
While unemployment benefits and severance packages can provide temporary relief, exploring alternative income streams can help bridge the gap until you secure a new job. Consider the following options:
Freelancing and Consulting
Leverage your skills and expertise by offering freelance or consulting services. Platforms like Upwork, Fiverr, and Freelancer.com can connect you with clients seeking your specific talents.
Gig Economy Opportunities
You can earn money by driving for rideshare services, delivering food, or selling items on websites like Etsy or Amazon Handmade. These options can provide income while you search for a new full-time job.
Temporary Employment
Temp agencies provide short-term jobs in different fields, helping you make money while looking for a permanent job.
Debt Management Strategies
During a layoff, managing debt can become a significant challenge. Implementing effective debt management strategies can help you avoid further financial strain and protect your credit score.
Prioritize Debt Payments
Prioritize essential debt payments, such as mortgages, rent, and utilities, to avoid potential consequences like eviction or service disruptions. For non-essential debts, consider negotiating with creditors for temporary payment plans or reduced interest rates.
Debt Consolidation Options
If you have multiple debts, consolidating them into one payment can simplify the repayment process. This can also potentially lower your interest rates. Options include balance transfer credit cards, personal loans, or debt consolidation programs.
Credit Counseling Services
If you’re struggling to manage your debt, consider seeking guidance from a non-profit credit counseling agency. These organizations can provide personalized advice, negotiate with creditors on your behalf, and develop a manageable debt repayment plan.
Protecting Your Credit Score
A job loss can significantly impact your credit score if not managed properly. Maintaining a good credit score is crucial for securing future employment, housing, and favorable loan terms.
Monitor Your Credit Reports
Make sure to regularly review your credit reports from Experian, Equifax, and TransUnion. This will help you ensure their accuracy and identify any errors or fraudulent activity. Checking your credit reports frequently is important for maintaining financial security. Be vigilant in monitoring your credit information to protect yourself from potential identity theft.
Prioritize Timely Payments
During a layoff, it is important to pay at least the minimum amount on your debts. This will help you avoid late fees and prevent damage to your credit score.
Communicate with Creditors
If you’re experiencing financial difficulties, proactively communicate with your creditors. Creditors may help by offering temporary hardship programs or payment plans to help you stay current on your obligations.
Rebuilding Your Emergency Fund
Once you’ve secured a new job and stabilized your financial situation, it’s crucial to rebuild your emergency fund. An emergency fund acts as a safety net, providing a cushion against unexpected expenses or future job losses.
Determine Your Target Amount
Financial experts typically recommend having three to six months’ worth of living expenses saved in an emergency fund. However, your target amount may vary based on your individual circumstances and risk tolerance.
Automate Your Savings
Set up automatic transfers from your checking account to a dedicated savings account each pay period. This “set it and forget it” approach can help you consistently put money away to your emergency fund without relying on willpower.
Know High-Yield Savings Accounts
Consider opening a high-yield savings account to maximize the growth of your emergency fund. These accounts typically offer higher interest rates than traditional savings accounts, allowing your money to work harder for you. Make sure to speak with a financial advisor you work with to understand different types of cash-like accounts such as a savings account.
Rebuilding Your Career
While managing your finances is crucial during a layoff, it’s equally important to focus on rebuilding your career. Take advantage of this transition period to reassess your goals, update your skills, and position yourself for future success.
Update Your Resume and Online Presence
Ensure your resume accurately reflects your latest achievements and experiences. Update your LinkedIn profile to increase your visibility and connect with potential hiring managers or employers.
Explore Upskilling Opportunities
Consider taking online courses, attending workshops, or pursuing certifications to enhance your skillset and stay competitive in your industry. Many educational resources are available at low or no cost.
Leverage Your Network
Reach out to your professional network, including former colleagues, mentors, and industry contacts. They may be aware of job opportunities or willing to provide valuable insights and recommendations.
Prepare for Interviews
Before interviews, research potential employers, practice common questions, and update your professional attire if necessary as you apply for new positions.
Seeking Professional Guidance
Navigating the financial and emotional challenges of a layoff can be overwhelming, and seeking professional guidance can provide invaluable support and expertise.
Financial Advisors and Planners
Consider consulting with a certified financial advisor or planner who can provide personalized advice tailored to your unique situation. They can help you develop a comprehensive financial plan, manage your investments, and make informed decisions about your retirement accounts.
During this transition, try not to make one-off decisions. Speak with a financial advisor to review your finances and make strategic decisions to pursue your goals. You can learn more about how to pick a financial advisor depending on your circumstances and priorities.
Career Coaches and Counselors
Career coaches and counselors can help you find your strengths, explore new careers, and create job search plans. They can also provide guidance on resume writing, interviewing techniques, and negotiating job offers.
Mental Health Professionals
The stress and uncertainty associated with a layoff can take a toll on your mental and emotional well-being. Don’t be afraid to ask for help from mental health professionals like therapists or counselors. They can give you strategies to cope and guide you through this time of change.
Losing your job can make managing your finances difficult. However, with the right strategies and a positive mindset, you can overcome this challenge. By staying positive and using effective financial strategies, you can emerge stronger and prepared for new opportunities.
Remember, a layoff is only temporary. You can regain control of your finances by managing your money effectively. Additionally, you can explore other opportunities to earn income. Finally, focus on rebuilding your career to improve your financial situation.
Talk to a financial advisor specializing in working with executives after layoffs. Schedule your free consultation today.
Securities and advisory services offered through LPL Financial, A Registered Investment Advisor.
Member FINRA/SIPC.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.