Losing your job unexpectedly is never a fun experience, but it’s a real scenario that can happen to anyone.
In addition to the mental and emotional turmoil of losing colleagues, routine, and a sense of purpose tied to your old job, there are real financial ramifications to losing a steady paycheck.
There are mountains of great advice out there for how to navigate the transition and find your next job, from dealing with the stress of it all to updating your resume and social media channels, but I want to focus on the specific financial actions that could mean the difference between swimming and sinking during this transition.
Here are 10 financial steps to survive losing your job.
1. Realize You Need to Act Fast
One of the biggest mistakes people make when losing a job is taking their time and trying not to disrupt their current lifestyle.
While there is plenty of rationale for trying to keep some sense of normalcy amidst the chaos, the truth is that holding on to normal spending patterns greatly shortens your financial runway and can turn out to be incredibly destructive.
Your first action step is to recognize the immediate need to extend your financial runway as long as possible.
The two factors that determine your financial runway are your monthly expenses and your total amount of saved money.
Without a paycheck coming in, your amount of saved money is likely fixed.
That means extending your financial runway is a factor of how far you can reduce your monthly expenses.
You may have 1 or 2 months of living expenses saved up in your savings account, and that feels good.
But there’s no guarantee you’ll get your next job (and your next paycheck) in that timeframe. What if it takes 3 or 4 or 5 months?
It’s always better to assume it will take longer than you think to find your next job, and adjust your spending accordingly.
Then, if you do get that next job in just 3 weeks, it will be incredibly easy to scale your lifestyle back up to previous levels.
But it’s incredibly hard to do it the other way around.
So decide right now to take the following actions quickly to extend your financial runway as much as possible.
2. File for Unemployment
The method for filing for unemployment varies by state, as does the process you’ll need to go through, and how quickly you’ll receive your first check.
In some states the process is more intensive and you could be waiting weeks before your first check arrives, so it’s best to start the process right now.
You can’t control how long it will take, but you can control how quickly you take the first step.
Again, you may think that you’ll be able to get your next job pretty quickly and, therefore, don’t need to bother with unemployment benefits, but it’s better to assume the reverse.
If you happen to get a job in 3 weeks, you’ll find it easy to cancel your unemployment benefits, but you’ll find it frustrating to be just starting the process when you’re already in your second month without a job.
3. Get Your Health Insurance in Place
Unfortunately, losing your job and losing health insurance often go hand-in-hand.
While there’s never a good time to have a medical event, when you’re out of work is probably one of the worst times, so getting health insurance in place while you look for another job is an absolute must.
Your employer will likely offer you some options, including continuing with your existing health insurance through COBRA. (COBRA stands for Consolidated Omnibus Budget Reconciliation Act, but all you need to know is that it’s this law that allows you to pay to continue on your employer health insurance coverage for a set period of time after you separate from service.)
This is a valid choice, but often incredibly expensive.
Your employer was likely subsidizing your health insurance premiums while you worked there, but with COBRA you may have to take on the full premium payments yourself.
Another option is to apply for healthcare through Healthcare.gov as provided by the Affordable Care Act.
Losing your job is a qualifying life event allowing you to apply for coverage outside of the normal open-enrollment dates.
Whatever you choose, you’ll need to move fast to get coverage in place as quickly as possible. Once this is done, you’ll sleep better at night and be able to focus on moving forward.
4. Take Your 401k With You
Your 401k money is yours.
Take it with you!
You have the option to leave it in your previous employers 401k plan just as it is, but since you no longer work there, you’ll likely find it difficult and frustrating to access and manage it appropriately.
A better option is to do a direct transfer of your 401k money into a Traditional IRA account at a brokerage company of your choosing. (Fidelity, Vanguard, Schwab, etc.)
This is better because…
- your relationship with your brokerage company won’t change even as you change jobs in the future.
- you’ll likely have hundreds if not thousands more investment options than the 10 or 20 provided by your company 401k.
- You’ll be able to manage your investments quickly and easily online or talk to customer service when it’s convenient for you, not your old HR department.
With any good brokerage company, you’ll be able to complete the forms online and have the money transferred directly from your old company 401k into your Traditional IRA.
Some companies require the check to be mailed to you, then you mail the check to the brokerage company.
Either way, as long as you don’t keep the money for more than 60 days, you won’t pay any taxes or penalties for the transfer.
Also Read: The Beginner’s Guide to Investing
5. Get Your Final Paycheck & Severance
On your last day at work, you’ll likely still be owed some money for time worked.
Talk to your HR department and calculate how much money you are owed, plus any severance pay.
Ask about compensation for any unused sick or vacation time. Many companies will offer to compensate you at a set hourly rate for your unused time.
In the end, make sure you understand exactly how much money you are owed, and when you can expect to receive your final paycheck.
Knowing how much money you will be getting, and when it will arrive, will help you better plan for the next steps.
6. Do a Budget
If you don’t do one already, sit down and create a budget.
If you’ve never done one before, check out my free How to Do a Budget tutorial, then download my LYW Budget Spreadsheet.
Also Read: 3 Budget Apps That Will Change Your Life
Now is the time to get a handle on your monthly bills and expenses, as well as how much money you have in the bank to help get you through.
Putting together your budget will give you a birds-eye view of your planned expenses relative to your existing money and any additional money you’ll be getting in your final paycheck.
With those two powerful numbers, you’ll be able to do some quick math and see how long your financial runway will be.
You may discover that you’ll be ok for several months.
Or you may discover that after your next round of bills, you’ll be scrounging for loose change in the couch cushions.
Either way, knowing where you stand is critical, and the good news is that you can always extend your financial runway by cutting your expenses.
7. Cut Your Expenses
As we discussed in #1, the amount of time you can stay afloat financially is a function of your expenses vs. your saved money.
Your saved money will get a bit of a boost once your final paycheck arrives and unemployment kicks in, but the fastest way to extend your financial runway is to quickly and drastically cut your expenses.
Remember, assume it will take you longer than you think to get your next job.
Here are just a few areas worth exploring to get your monthly expenses as low as possible.
- Cancel any unnecessary subscriptions – and most of them are unnecessary. You can always add them back later.
- Cancel your cable TV package. You’re too busy looking for a job to be vegging out in front of the tube anyway.
- Contact your cell phone provider and ask for ways to save money. Reducing your plan temporarily might be a good option, although I would avoid switching carriers because having interrupted cell phone service makes it hard to stay in contact with recruiters, interviewers, contract agencies, etc. Missing those connections isn’t worth it.
- Contact your internet provider and ask for ways to reduce your bill.
- Shop for cheaper Auto and Homeowners insurance. Without a need to drive to work every day, see if your current provider can give you a discount. Switching providers for a cheaper rate may be the way to go if your current provider won’t work with you. (You can always switch back later if you LOVE your insurance company.)
- Bundle your Auto/Home insurance with a single provider if you have them with different providers currently. Most insurance providers provide significant discounts if you have more than one insurance product with them.
- Make a grocery list and only buy what you absolutely need. Avoid buying things that aren’t a necessity right now.
- Explore transferring your credit card balances to a new card with an introductory 0% interest rate. See if your current credit card companies will work with you, but if not, be prepared to transfer your balances. (Again, we’re focused on short term money savings just until you can get your next job. You’ll have to pay back these balances at some point, so be very aware of the regular APR when the 0% introductory rate goes away, and exactly when that introductory rate disappears.)
As you do your budget, you may notice other areas where you can cut back or save money.
ATTACK IT ALL!
Every dollar you save is buying you time that you just might need.
8. Stop Buying New Stuff
Along with cutting your expenses, reducing the things you buy will go a long way to extending your financial runway.
Make a list of things that you think you need to buy and write down any adverse effects of waiting a few months instead.
With most things, you’ll find little more than the internal pains of not-getting-what-I-want-itus as the primary frustration.
Learn to embrace that frustration.
This is a temporary situation, and every time you say no to buying something, you are saying yes to experiencing more freedom as you hunt for your next job.
9. Inventory Your Gift Cards
Of course, eventually, there will be things that you really do need to buy, and you’ll want to accomplish that in the most efficient way possible.
If you’re like most people, you’ve got a drawer or a box or an envelope stuffed with gift cards that you’ve received over the years.
Now is the time to make use of that free money!
Go through your cards and inventory how much money you’ve got and for which stores or restaurants.
The next time you need to buy something, look through your list and see if you’ve got a gift card that will come in handy.
Knowing you can get things without spending any of your own money will be the wonderful present that gift card was always intended to be.
10. Sell Stuff
Remember the “saved money” side of the equation from above?
Well, there actually is a way to increase that number.
SELL STUFF!
Look around your house and start looking for the junk you’ve been wanting to get rid of anyway.
How many things have been sitting around for years for you to have the time to do something with it and you forgot that you even had it?
All of this is money just lying around your home.
Pull things out, take pictures of them, and start offering them on Craigslist or Facebook Marketplace or Offer Up.
Don’t try to make a million dollars, but offer things for a reasonably low price and you’ll get large portions of your house decluttered while gettings stacks of cash in return.
But remember, your new job isn’t as a full-time junk seller.
This is a quick and dirty sell-off, not a month-long retail and merchandising experience, so plan for just a weekend to unload your bounty.
Take pictures and post things on a Friday, and spend Saturday and Sunday getting it out of your house. Make people meet you at your home so you’re not running around all over town.
Keep a list of first and second offers for each item and have the first person commit to a time to pick it up.
If the first person doesn’t show up on time, text the second person and tell them it’s theirs.
Get in. Get out. Put the money in the bank.
Bonus Step
11. Unplug Your TV
No, this isn’t a save-money-on-electricity plan.
This is a you-don’t-have-time-to-be-watching-tv-right-now plan.
You may not have your old job, but you now have 5 new jobs between updating your resume, talking to recruiters, cleaning up your social media pages, contacting your cell phone and auto insurance providers, getting your healthcare in place, taking pictures of your stuff and selling it online, you simply DON’T have time to keep up with the Kardashians.
“But what about in the evenings when I need to recharge?”
Pick one of these activities instead.
- Read a book.
- Learn a skill that will help you in your job hunt.
- Take an online course.
- Workout.
- Cook a meal that will last a few days.
- Go to bed early and get 8 hours of sleep.
- Call a friend or colleague in the same field and talk shop.
- Make a list of what you’re going to do tomorrow.
- Facetime your parents and let them know what you’re up to.
- Listen to music.
- Play an instrument.
- Draw / Paint / Write
- Build something.
- Listen to a podcast.
The list of things to do instead of watching a television show or movie is truly endless.
This won’t save you money instantly, but during this time of transition, discovering new things that you are passionate about (or old things that you may have lost touch with) will be 10 times more rejuvenating than falling asleep in front of a glowing screen.
From Losing Your Job to Gaining Your Freedom
It’s important to complete these steps as quickly as possible.
Some items may take a few hours, others a few weeks (401k rollover), but the quicker you get these things finalized the sooner you’ll be able to settle into your new job of finding your next job.
Part of the challenge of job hunting, especially when it occurs unexpectedly, is the feeling of chaos that permeates every area of your life.
But as you start working your way through this list, you’ll find that it gives you a sense of control and purpose that tames a lot of that chaos.
As you make progress, you’ll be in a much better mental, emotional, and financial position to explore the job market and find that next job that is just right for you.
Good luck!
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