Financial Steps to Take if You Lose your Livelihood

Losing a job can be a trying experience. Aside from the obvious financial anxiety it can cause, the stress of losing a job can also take a toll on your overall mental and emotional health. On one hand, it can feel like the worst thing to happen in your career and life, but it also presents an opportunity to take a step back and regroup. Being proactive and focused can help you weather this life event. Losing a job is a temporary setback, and with careful planning, you can navigate through it and emerge stronger on the other side. Here are a few things to keep mind.

Lean on your support network of family, friends, and professional connections not just for financial support, but to organize a game plan for how to handle being out of work. While it is easy to think that money is the most important thing, there’s a lot more to having a support network than the financial aspect. Many of us are not experienced in what to do after losing a job, and seeking advice and guidance from those close to us can be extremely beneficial.

When it comes to the financial details after losing a job, you should understand what is needed to apply for unemployment benefits as soon as possible. These payments can provide some financial assistance until you secure a new job. Unemployment benefits vary from state to state, but you'll generally have to meet the eligibility criteria to receive benefits. You should check with your state’s Department of Labor for more details. Benefits typically last up to 26 weeks, but some states might provide more or less. The amount you receive will depend on your previous weekly earnings and your state's maximum benefit. If you're offered a severance package due to a layoff, carefully review the terms and conditions. You may want to consider negotiating for certain features in your severance package, such as asking your former employer to subsidize your health insurance costs for several months.

As far as your personal finances are concerned, it will be important to take inventory of your current overall financial situation. Review your savings and investment accounts, monthly expenses, outstanding debts, and any other financial commitments. Before making any major financial moves, it’s important to first take stock of your individual financial picture.

Evaluate your overall budget and identify areas where you can cut back on expenses. Focus on essentials like housing, utilities, food, and healthcare. You may need to prioritize expenses and allocate funds accordingly and look for ways to reduce costs. Assess your financial obligations and see if you have enough money to get you through the short term. Figure out how much money will be coming in each month through severance and or unemployment benefits, along with a spouse's or partner's income.

Then review  your outflows: rent/mortgage, utilities, car payments, food, insurance, credit cards, educational expenses, cell phones. You may also have new expenses, such as COBRA (Consolidated Omnibus Budget Reconciliation Act) continuation coverage for health insurance, since losing your job is likely to impact your healthcare coverage. COBRA coverage does not involve cost sharing with the former employer, and the cost now becomes your responsibility. For most people this cost is unaffordable when unemployed. Research more affordable coverage alternatives in your state’s healthcare marketplace to maintain coverage.

Ideally, you should have at least three to six months of living expenses set aside in an emergency fund for circumstances like this; consider using your emergency fund to cover essential expenses during this time. Be mindful of how much you withdraw and try to preserve your savings as much as possible for key expenses. Many people consider dipping into their retirement accounts, especially if they do not have an emergency fund.   However, it is critical to exercise caution when using your retirement accounts, and we do not recommend it. Pulling funds out of your 403b or 401k plans could lead to serious tax consequences, as well as the loss of retirement savings you’ll need down the road. If you're 55 or older, you can withdraw from a retirement plan without paying the 10% penalty, but your withdrawals might still be subject to income tax. Also, some states may reduce dollar-for-dollar the amount of unemployment compensation because of your withdrawals, so check with your state first.

You may want to seek the assistance of a financial expert. Talk to a CERTIFIED FINANCIAL PLANNER^TM who can help guide you and answer important questions. As a member of MMBB, CFP^®’s are a phone call away from assisting with your financial situation. MMBB’s Financial Planning Specialists are ready to guide you through each stage of your financial journey. When you're out of work, financial planning becomes even more critical to ensure you can sustain yourself until you secure a new job.

Income loss due to unemployment can be tough to handle. What matters most is maintaining financial stability while you figure out your next move. By taking these planning steps, you can weather trying times.