Keys to surviving job loss

1/21/2021 12 minute read

We’re here for you with tips to surviving the financial burdens of job loss.

Keys to surviving job loss
 

We know many of our members may be struggling with the stress of job loss. Or, perhaps you may be concerned that you could lose your job. Having a plan can help reduce that stress, so we’d like to share some advice on how to plan ahead, cut your expenses and take stock of your income.


 
Plan ahead
If you're worried about losing your job, it's a good idea to plan ahead. Since it may be difficult to know how long you could be out of work start with the goal of having six months of living expenses saved. You might find a job much sooner, but you don't want to be forced to take the first opportunity that comes along, especially if it isn't what you want.
 
Come up with a financial plan for unemployment, and design your plan with some flexibility to allow for adjustments if your situation changes.


 
Prepare a survival spending plan
Start with a list of all your income and expenses. You might already have a spending plan that you can use as a base, but your survival plan should be a bare-bones version of your regular plan. Include only expenses that are necessary. The goal of your survival spending plan is to have a good idea of what income you need to actually survive.
 
If you have an emergency savings, your plan also should include that as a source you can draw from to supplement other sources of income. If you haven't set up an emergency savings and still have income coming in, you may still have time to do so.  Every little bit put away into an emergency savings can keep you from missing a bill payment.  Plan your bare-bones spending plan carefully so you don’t end up depleting your regular savings in case your unemployment lasts longer than expected.



 
Reduce expenses
If you're unemployed, you may find that your income won't support all your current expenses. One of your first considerations should be to identify and discontinue discretionary expenses. Such items as magazine subscriptions, health club memberships, extra phone services, credit cards you don't use that have an annual fee, dining out regularly, and extra TV subscriptions are examples of some of the expenses you can consider trimming from your spending plan.
 
Federal, state and local financial safety net programs are designed for times like these.  For example, the SNAP nutrition program provides a monthly amount to help with groceries.  Call your water and electric utilities to ask about programs to help when you are unable to pay your entire bill.  Local government and nonprofit organizations can sometimes help with rent or mortgage payments on a limited basis.  Pay your phone bill first, to ensure that you have a way for potential employers to contact you.

 
Talk with your creditors
Another way to cut your expenses is to try negotiating with your creditors to lower interest rates on your credit cards, defer a payment or two on your car loan, or reduce your monthly payments temporarily. You also may be able to lower your home mortgage monthly payments by refinancing to a lower rate, or by negotiating a longer repayment period. You'll want to start making these calls before you fall behind in your payments.
 
Along those same lines, check with your mortgage or credit card companies – or look at your billing statements – to find out if you have credit insurance. While it may take some time to receive benefits, credit insurance will make your bill payments when you're unemployed.



 
Take stock of your income
If you're offered severance pay, you might have the option of taking it in a lump sum or as a continuation of salary for a fixed period of time. Taking severance pay in a lump sum gives you control over your money, but you may lose some employee benefits such as group health insurance. If you take your severance as a continuation of salary, you may be able to keep your benefits, but you'll be dependent on your former employer's ability to make payments to you.
 
You’ll also want to check with your local unemployment office to find out if you're eligible for unemployment benefits. You can receive at least 26 weeks of benefits, more in some cases. Generally, to qualify for unemployment benefits you must have been laid off. You may even qualify if you've been fired, so long as it's not for misconduct.

 
Increase your income
You've cut your expenses and spending as much as possible, but you still don't have enough income. Here are some ideas that might help you meet your expenses while unemployed.
 
Consider a part-time or temporary job. This will provide another source of supplementary income while you search for your next full-time job. And your part-time job could turn out to be your next full-time job – or at least it might lead to another opportunity with a potential employer.
 
Another income-generating option is borrowing from the cash value of your life insurance policies. Before considering this, you should know that you'll be limited as to how much you can borrow by the amount of cash available and other policy restrictions. You'll also be charged interest on the borrowed funds, so if you don't repay the loan, it can reduce your death benefit or even cause the insurance to lapse.

 
If you're really strapped
If you have savings in a 401(k) plan, consider contacting your plan administrator to ask for a hardship loan.  Interest rates on 401(k) loans are generally lower than other types of loans, and you’ll be borrowing from yourself so you can pay yourself back when you get a new job. If you don’t repay the loan, you’ll eventually pay income tax and early withdrawal penalties if you are younger than 59½ years, so look for those letters from your plan administrator.
 
If you are not able to get a loan, you might have the option of withdrawing funds from your tax-deferred retirement accounts, such as your IRA or employer-sponsored retirement.  Any money you withdraw from these types of accounts likely will be taxed as ordinary income for the year in which you make the withdrawal. Also, you may have to pay a 10% penalty tax for early withdrawal if you're under age 59½ unless an exception to the penalty applies.
 
If you're considering taking funds from your IRA or retirement plan, you should consult a tax advisor regarding the specific tax treatment of your withdrawal.
 
Your home is another source of savings you may be able to tap into. If you have enough equity in your home, sometimes you can obtain a home equity line of credit even if you've lost your job. You'll only pay interest on the portion you use. But you'll still have to make a monthly payment, so make sure you're able to afford the new loan payments.

 
If all else fails
If money really starts getting tight, be prepared to take more drastic steps. You might consider finding housemates to help share expenses.  Or you could move from your home and rent it temporarily if you’re able to locate cheaper alternative housing.  The rental income from your home may be enough to cover your rental expenses while your tenants pay for most of the home costs, such as utilities and even property taxes. However, any decision you make in this area should be made with careful consideration, and only after evaluating how much you can actually get out of the deal.
 
As a last resort, you may have to consider selling bigger items like your car or even your home. Since you may likely be making payments on them, by selling them you're not only generating some cash but you're decreasing your expenses.



 
Mind your health 
Losing a job adds a lot of stress, so this is not the time to let go of your health insurance if you can afford to pay the monthly payments.  If you have health insurance through an employer, your employer must offer continuation of your benefits for up to 18 months when you’ve been laid off. You’ll have to pay the full cost of the premium, including the part that the employer used to pay.  Because losing a job is considered a “life event”, another option is to apply for subsidized health insurance on the state or federal health insurance exchange (www.healthcare.gov).  The site even has some plans with $0 monthly premium.   Look carefully at the available plans to pick the one that matches your budget and health needs.  Getting a plan in place quickly is critical to make sure most of your expenses would be covered if something serious happens.
 

As stressful as it can be to lose your job, you’re not alone.  We’re here for you to talk through your unique needs and help you determine the best plan to get you through this difficult time.

 
 
 
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