A 9-step Plan for Dealing With Unexpected Job Loss

Job loss ranks as one of the top stressful events we encounter during our lives, right up there with a death in the family, a serious illness, and divorce. It not only can crush you emotionally and wreak havoc with your self-esteem, but it can also devastate you financially, especially when you're unprepared...and let's face it, most of us are caught short when we're handed a pink slip.

The financial impact of job loss is probably the toughest challenge to face during this time, so it's critical to develop a plan that reduces as much financial stress as possible. Here are nine steps to take when you're facing unexpected unemployment:

Get a clear picture of what money will be coming in and what money is going out. As scary and painful as this may be, keep in mind that not knowing where you stand financially can cause even more stress and anxiety and cause you to make desperate decisions, so you want to take this step as soon as possible. Figure out how much money will be coming in each month through severance and unemployment, along with a spouse's or partner's income. Then list all your outflows: rent/mortgage, utilities, car payments, food, insurance, educational expenses, cell phones, credit cards, monthly subscriptions, etc., along with new expenses, such as COBRA continuation coverage for health insurance.
Go through your outflows and cut out any non-essential recurring payments and spending. For example, a glance through your checkbook might show that you spend a couple of hundred dollars on restaurant dining each month or that you have subscriptions to several premium streaming services. Are holidays and birthdays coming up? Avoid pulling out a credit card to "save face" -- instead, you can explain to your friends or family that you need to cut back right now...or you could even look for a creative and inexpensive way to celebrate. By eliminating expenses like these, you can free up cash to cover your essentials and also keep yourself from racking up new debt, which will cause more financial stress.
Create a budget. You may already have one, which is great, but you need a new one to carry you through your unemployment. Don't have one? Well, if there was ever a good time to develop a budget, this is it because it'll be lean, mean, and easy to follow because you've cut away all the non-essentials. Here's a link to our Money Management Planner, which is completely free, to help you out.
Put the brakes on your savings. When you're employed and income rolls in regularly, it's important to have a savings plan. But when you're not pulling in a regular paycheck, you need to free up your cash flow. If you've been putting extra money toward a credit card or mortgage, drop your payment down to the minimum to stay current. If you've been socking money away for emergency savings, well, that brings us to the next step...
Dip into your emergency savings. All that money you've been saving for a rainy day? Your rainy day is here. A lot of people who are used to saving regularly have a hard time dipping into emergency savings, but surviving a period of unemployment is exactly why you've been saving this money. When you're back on your feet again, you can replenish the funds, but for now, your emergency savings can be put to good use.
Get clear on your benefits. Many employees leave a job in a daze and either forget or don't inquire about transitional benefits a former employer might offer beyond severance and/or unemployment compensation. If you're part of a planned workforce reduction, your employer may offer additional benefits like free access to a career counselor, help with resume writing, financial planning workshops, or even office space and resources to conduct a new job search. If you're leaving on a positive note, it can't hurt to ask the human resources department for their assistance.
Ask for help as soon as you need it. If you're at the point where you can't make your mortgage payment or pay on credit cards, contact your creditors and let them know what you're going through. Ignore the temptation to hide or pretend a crisis doesn't exist. It may feel embarrassing or humiliating, but they deal with situations like these every day. Also, look at your loan paperwork. Did you purchase a policy on your loan that will cover your payments during a period of unexpected unemployment? If so, you can start pulling together your documentation for a claim. Contact your utility companies, which may have hardship plans. The key is to make contact before you're in financial trouble as many plans won't let you join up if you're already in arrears.
Tread carefully before touching your retirement savings. It can be tempting to withdraw money from a 401(k) plan during a financial crisis, but this can be a costly decision. If you're 55 or older and lose your job, you can withdraw from a 401(k) without paying the 10% penalty, but your withdrawals will be subject to income tax. Keep in mind that some states may reduce your amount of unemployment compensation because of your 401(k) withdrawals, so check with your state's department of labor first. If you're under 55 and decide to take money out of your 401(k), you'll have to pay both income tax and the 10% penalty. You'll also be losing the benefit of tax-free savings over time by pulling your money out, so again, think carefully before making this decision.
Talk to a financial planner or credit counselor. These professionals are not just for people rolling in cash or who are in significant debt. They can help you set a budget, whittle down your spending, and give you some clear-headed advice. As a member of Hanscom FCU, you're a phone call away from free access to financial counseling through our partner, BALANCE.

Many other Americans are going through the same experiences you are, so you are not alone. There's no doubt an unexpected job loss can rock your world, but it can also prove to be an experience that helps you grow and leads you to a new and better job.

Download our free Financial First Aid Guide! It'll walk you through the best ways to manage your money during uncertain times. We’ll show you how to take inventory and review all your expenses, assess your debts, prioritize bills and communicate with creditors, and so much more!