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What Financial Steps Should I Take If I Just Lost My Job?

debt retirement investments goal setting budgeting

Losing your job can be a devastating turn of events. You may have felt it coming or maybe you were totally blindsided by layoffs or cutbacks that you had zero control over. At the time you are let go, you may look forward to playing more golf -- but, you may also feel a bit of financial stress.

Hopefully, you have an adequate emergency fund (read - "not retirement plans") to last at least 3-6 months of essential living expenses.  While there is hopefully enough funds to cover your green fees, that fund is meant to cover housing, food, healthcare, and other essential expenses while you look for a new job. . If you feel overwhelmed, that’s to be expected, but there are a few things you can do financially to make sure you are covered after any job loss. Here are a few important steps to address to ease the financial stress and avoid making poor financial decisions.

Step 1: Determine Your Minimum Budget

This minimum budget number is the exact, or pretty close to it, figure you need to get by each month. Hopefully,  you already have a general idea of this amount, but our experience is that most people -- regardless of net worth or sophistication -- don't have a great grasp of what this number is.  This amount includes your rent or mortgage payments, food, utility payments, transportation, and any required debt payments. Don't be afraid of using a spreadsheet - at a minimum, write this itemized list down.

Step 2: Determine If You Need to Trim Unnecessary Spending

If your prospects of obtaining a job in the near future are good and your financial situation allows, don't feel the need to cut back on all expenses.  Hopefully, this is a short-term setback. However, if you will fall too far behind on paying off debt, saving for retirement, or saving for your kids' education, then review what expenses should be cut.  If you have a family, it is important to discuss the need to tighten the belt a little bit and be as transparent as it makes sense.  If you children (or a temperamental spouse), you will obviously want to be positive and not stress that dire financial ruin is around the corner.  Put a positive spin on the situation of needing to adjust the lifestyle.  (Often times, spending less means spending more time with the family at home -- that's not necessarily a bad thing.)

Step 3: Figure Out State Unemployment

If you’re going to receive unemployment, there are forms to be filled out and filed with the state. Make sure you have all of that taken care of with your ex-employer so you don’t miss out on getting those payments in a timely fashion.  In Tennessee, the payments are not significant - eligible recipients may receive up to $275 per week for a maximum of 26 weeks.  You can apply for benefits in Tennessee through their online system.  Other states obviously have their own application and rules.

Step 4: Assess Your Job Situation

Prioritizing your debt payments when you lose your job is an important step to take as well. If you know you won’t be able to pay on time during any month, it's important that you contact those parties immediately. Let them know what happened and when you intend to pay on time again. This might just be a hopeful guess, but keeping them in the loop about your circumstances may prevent them from sending your overdue bills to collection agencies.

Step 5: Review Your Benefits At Work

Review your benefits at work to ensure you are receiving what you deserve. Do you have unpaid vacation that is due you?  Do you have any funds in the Flexible Spending Account or Health Saving Account. If it makes sense in your situation, consider rolling over your employer's -- or, ex-employer's -- retirement plan into an IRA or Roth IRA, depending on the type of account.  Don't forget about insurance -- review COBRA benefits and determine whether any group life insurance is portable.

Step 6: Review Your Asset Allocation of Your Portfolio

As long as your emergency fund will cover your short-term needs, you may not need to make major moves to your asset allocation.  If you were originally invested for the long-term, hopefully you can stay invested in the long-term. While it may be tempting to move out of more volatile stocks in light of the financial stress that you may be feeling, this can wreak havoc on your long-term retirement plan if you move out of stocks and forget about it.  Finance behavioral mistakes often creeps in at this time -- be careful to acknowledge such tendencies and respond appropriately.  Of course, if you felt like you would need to tap into your stocks, you may wish to consider strategically paring some of your allocation to stocks; of course, make sure you understand the tax consequences before making any major moves.

Step 7: Reassess Your Financial Goals

While you do not need to run out and panic with your retirement planning or education funding, consider the impact that this career change may have on your retirement goals. Chances are it won't impact you over the long-term, but you may need to re-evaluate whether you are still on track for your target retirement date, funding your children's education, or other financial goals.  A fee-only planner that touches on holistic advice can help you re-evaluate your situation.  A list of such advisors can be found at The Alliance of Comprehensive Planners.

Step 8: Make a List of Priorities and Career Options; Then, Get That Ideal Position

If your position was eliminated, it is a great opportunity to find that ideal position that more closely ties to your passions and skill set.  Take a personal assessment of your skills and passions by both looking inward and getting feedback from other professionals.  In addition to determining what area of work you are passionate about, consider engaging in assessments such as StrengthsFinder or the DISC profile for objective tests that attempt to find your strengths and behavioral tendencies.  

Of course, you may have been in the ideal position, but the timing was not right with your former position. The company may have been in financial trouble or you worked with incompetent management.  If that is the case, look for a competitor to join up with or consider going out on your own!

Don't let your change in employment negatively impact your mood. With the right mindset and the proper focus on sound financial decision making, this change will be at most a small bump in life and, at best, a powerful impetus to lead to a better life.  Fore!