Losing a job is one of life's great traumas, even more so if it's unexpected or if it becomes protracted, as is the case with many of today's unemployed workers. The initial shock can very quickly turn to fear, isolation, and depression. For many people, just the thought of putting together a resume after decades of steady employment is enough to lose sleep.
When you have no income, the idea of "financial planning" is often the furthest thing from your mind, but financial planning is more than just what to do with your income. One of the most startling things that people discover during unemployment is how quickly a nest egg can be spent.
Though few people actually do it, the best time to plan for prolonged unemployment is while you have a job. Second-best is immediately after you become unemployed. Either way, a qualified independent advisor can offer invaluable assistance.
If you still have a job, you must make it a priority to create an emergency fund, of three to six months' expenses. If you're older it should be even more, because the hard truth is that older workers have a harder time finding work. If you're expecting to be laid off, talk to your human resources department about a severance package; weigh the options carefully.
If you've already lost your job, play it safe and assume that you will be out of work for a long time. With this in mind, there are some things you need to take care of immediately.
- If you think having no income is bad, try having no income combined with unexpected medical bills. Check with your former employer's human resources department to find out what benefits you're entitled to. Although it's expensive, consider COBRA coverage if you have no other options, because if you go without health insurance for 60 days, your next insurer may deny coverage for preexisting conditions.
- You may also have life, long-term disability, and other types of insurance through your former employer. Find out what they are, and how you might be able to continue them.
- Contact the Unemployment Office immediately; the enrollment process is often difficult and time-consuming, and even in the best of cases the first check probably won't arrive for two weeks. Many states have brought this process online, which is more convenient, efficient, and (importantly for many) private.
- Similarly, consider signing up for food stamps. This is another process that's prone to delays, and if you have a family to support, food is not something you want to find yourself without. You can always remove yourself from the program if it proves unnecessary.
Next, create a budget.
- The hardest part about this will be identifying what's essential and what isn't. Food is essential; restaurants aren't. Exercise is essential; a gym membership isn't. A phone is probably essential; cable TV isn't.
- Include in your budget minimum payments on all of your credit cards; don't make a bad thing worse by missing payments and raising your APRs or incurring penalties. But realistically forget about eliminating debt until you have an income again.
Consider your options regarding an existing 401(k) plan.
- You can roll it over into an IRA, or keep it with your old company indefinitely, or plan to roll it over into your new employer's plan. The variables are too numerous to discuss here; be sure to consult with your qualified independent advisor.
- Think twice, and then think again, about tapping your 401(k) or IRA to pay expenses. Not only will you pay significant penalties, the money will be taxed as income, and you'll lose years of compounding growth.
Most importantly, make looking for a job, your full-time job, Monday to Friday, 9 to 5 (at the very least). This will not only keep you focused on a goal and productive, it will help to shorten the time you spend unemployed.
Whatever your employment situation, there's no bad time to talk to a qualified advisor. Contact us today to get started.