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Personal Finance Management After Losing Your Job                                                                                            

Unexpected unemployment may be unsettling emotionally and financially. These tips can help you manage your personal finances and get you back on track to success.

By Mike Azzara | American Express Credit Intel Freelance Contributor

10 Min Read | July 17, 2020 in Money

 

At-A-Glance

Job loss can have a big impact, not only financially but emotionally, too.

Cost cutting, reassessing your debt, and hustling for your next gig(s) are all key elements of a sound personal finance management plan after job loss – with the emphasis for each element varying based on your unique circumstances.

Personal finance experts agree it’s important to keep your healthcare coverage.

The first time I lost my job I was totally unprepared, emotionally and financially. A generous severance package and a booming U.S. economy saved me. The second time I joined the ranks of the unemployed came on the brink of the Great Recession, and with no severance pay. I saved myself: Today, I run my own business and write professionally, including about personal finance

 

With job losses and unemployment expected to be at high levels for some time, this article combines my experience with external research to offer tips to manage your personal finances after losing your job. It’s organized into five categories:

 

Emotional resilience: Job loss often brings emotional challenges to be overcome on the road to success.

 

Cost cutting: Experts say even if you have solid savings in an emergency fund, it’s wise to reduce expenses to make your money last longer.

 

Reassessing debt: What made sense for managing your debt before unemployment may no longer be the best approach.

 

Hustle: Try whatever it takes to bring in income while working toward your next job.

 

Healthcare: Some experts make this their top personal finance priority and suggest multiple ways to keep covered if your employer-subsidized health insurance was lost along with your job.

 

 

Why Emotional Resilience is Important After Job Loss

Because the job you do is often a big part of how you see yourself, many psychologists compare losing your job to losing someone close to you, saying it can cause you to go through similar stages of grief.The Forbes Finance Council notes that those emotions may cause someone who just lost their job to make personal finance management decisions that hurt them in the long run, like taking money out of their retirement fund before exploring other options.For me, the emotional impact hit hard the first time I lost my job but I was well prepared in round two. 

 

Here are tips that the experts and I agree can help keep you on an even keel and improve personal finance decision-making after a job loss:

  • Open up: It may be painful to tell friends and family you lost your job, but talking about it is important to emotional healing. And it’s the first step toward networking your way into your next big role.
  • Have a routine: If your old routine still works now that you’re unemployed, stick with it. Otherwise, build a new one. Waking early, exercising, putting in a full day’s work on your job search and side hustles – all these activities help keep negative emotions at bay.
  • Trust your family’s resilience: My wife and I were frank about the job loss with our triplets, who were in third grade the first time I lost my job and in high school the second time. Kids are super resilient. Just as the experts predict, both times they overcame their initial shock and volunteered ideas for how we could cut costs.

 

Maintain Your Health Insurance

Someone once said if you’re not healthy, nothing else matters. Financial planning experts seem to agree. They say maintaining health coverage after a job loss should be a top priority, and Business Insider made it number one.Job loss usually counts as an event that opens up enrollment for a new health plan. Here are some options:·     

  • Parent/spouse: If you’re in your 20s, you may be eligible to re-join your parents’ plan. If you’re married or, in some states, a qualified domestic partner, you can join your spouse/partner’s plan.
  • COBRA: If your company had more than 20 employees, it may be required to offer you coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for up to 18 months.
  • Professional associations: Many associations offer plans for their members. During my second phase of unemployment, I bought coverage through the New York-based Freelancer’s Union.
  • Public exchanges: People in every state can compare and buy health plans from multiple providers through public exchanges.
  • Medicaid: This government-sponsored health coverage is available to people with low incomes, the disabled, and some other groups.

 

Cutting Back When Unemployed – While Looking Ahead

After my first job loss, the severance package was a safety net that allowed me to avoid cutting expenses. Second time around my goal was to launch a new business, so we cut way back to help make our money last. Here’s a list of what I did and what else experts recommend:

  • Be ultra-frugal: It may sound harsh, but many personal finance management experts agree that after an unexpected job loss you should cut spending down to the basics: food, healthcare, and shelter. Consider everything else a luxury.
  • Know your budget: It’s hard to reduce expenses if you don’t know where the money goes. I didn’t – a trait shared with many Americans. For insight into budget building, read “How to Make a Monthly Budget, One Step at a Time.
  • Act fast: The sooner you put your cost-cutting plan into action, the longer your funds will last. Surprisingly, this felt empowering for me.
  • Dig deeper: Once you know your budget and figure out how long your personal finances will last, ask yourself a couple of hard questions. These may include: Should I put the house on the market/break my lease and find a smaller place or move in with family? Do I need the car, or am I better off with a lesser model?
  • Cook at home: Not only is it much less expensive than eating prepared food, it’s healthier, and for some people like myself, fun. Cooking can be a great creative outlet where you can even eat your mistakes – a time-honored saying in our home. You may be surprised how much money you can save on food: Read “How Much Should I Spend on Groceries?” for an analysis from the USDA of the lowest-cost ways to satisfy your family’s nutritional needs, and “How to Eat Healthy on a Budget.
  • Consider the little things that add up: Consider small changes such as lowering the thermostat and wearing a sweater or turning off the AC, shutting off lights and electronics, walking instead of driving, and clipping coupons.Stop paying for anything you can do yourself – like lawn maintenance or home repair. Cut down on streaming subscriptions.

 

Rethink Your Debt

People’s circumstances can be very different when it comes to debt management. Here are tips experts suggest if you’re suddenly unemployed while carrying debt:

  • Making a debt management plan: Depending on your circumstances, this may simply involve listing all your creditors, the amounts you owe them, and your monthly payments. If money is particularly tight, you may want to call, explain your hardship, and request special arrangements to reduce your payments, interest, or other terms. Creditors are usually not obligated to do this, but often are willing to help. If the debt is too high to handle on your own after losing your job, you may need to look into a professional debt management program. For more, read “What are Debt Management Programs and How Do They Work?
  • Calling creditors early: Many experts agree being proactive is particularly important, especially if your job loss is part of an overall economic downturn. It’s also important not to fall behind on payments, because that will likely be worse for your credit score.5
  • Breaking the golden rule: If there’s anything that personal finance managers usually agree on, it’s that you should pay your credit card bill in full every month to avoid interest charges. But if your finances are tight after a job loss, they say to break that rule – one of the first things to consider is making minimum payments instead. Yes, it’ll cost more in the long run because of the interest. However, that’s a price worth paying to help stretch what funds you have while maintaining your credit in good standing.
  • Checking your paperwork: Some mortgages and personal loans include insurance clauses that will make your payments if you’re unexpectedly unemployed.6

 

Hustle for Supplemental Income, and Your Next Job

Bringing money in may be the most urgent priority for many of the newly unemployed. Hustling made a big difference for me the second time I lost my job. With triplets in a private high school and college looming, I hit the ground running and never slowed:

  • Take any job, any price: For me, this meant accepting many small writing assignments I would have passed up before. But today, online marketplaces match people willing to work with others who want to outsource all sorts of tasks, from dog walking to food delivery to strategic consulting engagements. What can you do that someone will pay you for?
  • Find your next role: If you’re looking for a job, make that search today’s full-time job. If you want to build a business, work on building that business every day.
  • Network: Jobs – and clients – often come from people who know and trust you. Tell friends and family what happened, reach out to professional associates, let them know what you’re looking for next. Let them put you in touch with people they know who might help.
  • Use exit services: The first time around I ignored the various counseling services my company offered to help the newly unemployed, like financial planning workshops, career counselors, resume writers, etc. I took advantage of all that the second time I lost my job and benefited greatly, sometimes simply by the objective third-party critique they gave me.
  • Apply for unemployment: If you’re eligible, it’ll likely provide only a fraction of your salary. But it’s money coming in. Every state’s rules are different, but in general, if you lost your job and you weren’t fired “for cause” you may be able to receive unemployment benefits.
  • Tap your emergency fund: Use it if you have it. You wouldn’t think people need to be told this, but judging by my research, the emotional impact of job loss makes some people feel like a “loser” if they tap into their savings. Exactly the opposite. It should feel empowering – this is why you built that emergency fund.
  • Consider a retirement fund withdrawal: The personal finance experts say this should be a last resort because it’s a poor choice for you in the long run. But if other options are exhausted, you have to take care of the present. During the 2020 downturn, federal relief legislation loosened the rules around these withdrawals. For more, read “Is Withdrawing Retirement Funds Early a Good Idea?
  • Consider a 401(k) rollover: Many personal finance planners urge you to rollover your 401(k) into an IRA when you lose your job, or into a Solo 401(k) if you plan to start your own business. Some people believe this happens automatically, but it doesn’t. Your old employer’s 401(k) management firm will hold onto the account indefinitely, but that usually isn’t the best option. For more about Solo 401(k)s, read “Explaining 6 Key Types of Retirement Plans.

 

The Takeaway

Losing your job, especially during an economic downturn, can be a big emotional and personal finance challenge. Successfully powering through unexpected unemployment means doing many things simultaneously: managing your emotions, cutting your expenses, managing your debt, hustling for income and your next role, and taking advantage of every resource that’s available to you. Even in a downturn, there are some types of companies hiring like crazy – maybe it’s time to reimagine who you are. I did.

Megan Doyle

Mike Azzara has covered technology and financial services issues for more than 30 years as a writer, editor, publisher, consultant, and analyst for media brands, startups, and established corporations. Today, he runs a boutique content agency.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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