According to the Bureau of Labor Statistics, the unemployment rate is currently around 4%, which is still low by historical standards. And many companies still have difficulty filling some positions because the skills they need don’t match the skills in the available workforce. But that doesn’t mean that there are no layoffs. Job losses still occur due to cost cutting, restructuring, mergers and acquisitions and other factors. Here are some steps to take if you are laid off from your job.
File for unemployment as soon as possible. Unemployment benefits usually aren’t retroactive so you don’t want to delay filing. Hopefully you have a statement from your employer that you have been laid off as well as the dates that they employed you. This statement will be helpful when filing.
From your former employer
Check your final paycheck from your employer carefully. If you believe that anything is missing be sure to address it with human resources right away. Situations like this are why you save letters from human resources that explain exactly how your benefits work including how vacation is accrued, how bonuses are accrued and paid out and exactly how vesting of any benefits is scheduled. Save any communications regarding your benefits in a personal email account or document vault. You may lose access to your work email address with little or no warning.
Make sure you ask for any contact information for retirement plans – including the pension administrator. Contact these plans and ensure that they have the correct mailing address and contact information for you. They will contact you directly whenever they need to notify you of changes to your plan or for specific events related to your plans. Be sure to update your contact information whenever you relocate or change mailing address.
You should already have a good idea of your living expenses and when each bill is due. If not, this is the time to gather all of that information into an expense tracking or budgeting software. Don’t forget to consider that you may need to cover health insurance premiums at COBRA rates which are often higher than what you may have been paying from your paycheck. If your spouse is employed and has access to health insurance as a benefit, you should compare the costs or your spouse’s plan to the COBRA costs of your plan. Your loss of health insurance due to a change in employment status is a Qualifying Life Event and generally will allow your spouse to add health insurance coverage outside the open enrollment period.
Make sure that you understand any critical benefits that you relied upon your employer for besides your paycheck. Loan payments being deducted automatically from your paycheck will cease so you will have to get a new method for payments set up quickly to avoid late payments. Fees for gym memberships or club memberships may also have been deducted directly from your paycheck. Understand when any insurance coverages that you obtained through your employer will terminate including your health insurance, long-term disability, long-term care, and even pet insurance. Make sure that any claims that you had outstanding under any of these coverages are submitted prior to the termination of coverage.
Paying the bills
Then determine how you will pay your bills. If you are receiving severance pay you can use that. Otherwise, hopefully you will be able to rely on unemployment compensation to a degree. Unemployment compensation may not be as much as you’re used to making so you may have to tap other sources of income. If you have investments that generate current income, you may want to use some of that income rather than reinvesting it. If unemployment compensation combined with any other income streams you may have is not enough to cover your bills, then it’s time to dip into your emergency fund.
As you use your emergency fund, you’ll want to keep an eye on your investments. You don’t want to be in a position where you have to sell an investment on very short notice at whatever price you can get because you’ve run out of liquid funds. Keeping an eye on your investments may give you an opportunity to exit some investments more gracefully in case you need the cash in the near future.
While borrowing money to cover expenses isn’t ideal, it’s still a good idea to know what all of your options are. Determine what credit you have available to you through home equity or personal lines of credit and be sure to understand the interest rates associated with each. Remember that if you need to resort to using credit to pay your bills, you will want to borrow at the lowest rates first. And keep in mind that interest rates on credit cards can be very high. Make sure that you understand the interest rates on your cards if you are deciding between tapping a line of credit or carrying a credit card balance.
Ideally you have enough cash in your emergency fund to cover at least 3 months of your regular living expenses as well as an additional 3 months of essential living expenses. Hopefully, if you saw the potential for layoffs coming, you beefed up your emergency fund even further.
Losing a job is stressful both financially and psychologically. Being prepared with a sufficient emergency fund can help alleviate some of the stress. The comfort of knowing that your emergency fund is available can allow you to focus more on your job search without the distraction of worrying about how to pay your bills.
Having a financial plan so that you know exactly where you stand, what your assets are, what your liabilities are and how your cash flow will be affected can also help. While it won’t get you a new job, it can help prevent some of the fear of the unknown. It allows you to know exactly what your financial situation is, the degree to which you were dependent on that income stream and what you need as a minimum income when considering new job offers.