Lost job finance tips: What to do when you lose your job

An unexpected job loss can be stressful, emotionally and financially. A few key steps can help you feel more in control and ready for your next opportunity.

Losing your job without a new position lined up can be devastating on many levels. Sometimes losing your job can end up being for the best, but in the moment, a job loss can rock your confidence and cause stress.

Money worries will likely be a key source of that stress. Even if you already have an emergency fund, you’ll likely need to make some changes to protect your finances. Here are some steps to help ease the burden of a lost job and take control of your money after a job loss.

Lost job finance tip #1: Review your severance package

If you receive a severance package from your former employer, be sure to review the details closely. Your severance package and last paycheck could be two different things.

Your last paycheck will cover the time you worked from your prior paycheck to your termination date. Depending on the company, it may also include paid time-off benefits, such as vacation and sick days. And some companies include a prorated bonus. Double check that the time and benefits you earned are reflected in your final paycheck.

The severance package will include the paycheck as well as other benefits offered at your former employer’s discretion. While additional severance pay is not required by the Fair Labor Standards Act, some companies provide it either in a lump sum or as a continuation of your salary for a time. They may also extend use of company equipment and wellness benefits or provide access to career search tools. 

Lost job finance tip #2: Consider unemployment benefits

If you lost your job through no personal fault (like a company-wide layoff) and you meet your state’s requirements, you may be eligible for unemployment benefits. The purpose of unemployment benefits is to partially replace lost wages, so if you’re eligible, you shouldn’t shy away from applying. Note that if you are receiving severance pay, it may delay your eligibility.

Many states offer online applications that could speed up processing and get benefits to you faster. Required information can vary by state, but could include:

• Social Security number
• Driver’s license
• Contact information, including your address
• Previous employer information
• Bank account information in states that offer direct deposits of benefits

Lost job finance tip #3: Adjust your budget

While you look to replace your income, see where you can cut back on your budget. Review your expenses and adjust where you can to protect your savings. If you have an emergency fund, you might need to tap it to help cover regular expenses after losing your job.

If you’re struggling with debt repayment, explore whether any federal, state or lender relief programs are available, including mortgage relief programs, credit card hardship plans or credit counseling.

Lost job finance tip #4: Manage previous retirement plans

If you have an employer-sponsored retirement plan associated with your former company, you’ll need to decide what to do with it. You generally have four options for your old 401(k):

• Leave your money in your former employer’s plan. Note that you may need a minimum account balance to leave a retirement plan in place with a previous employer.
• Transfer your money into your new employer’s plan when you secure a new job.
• Roll over your 401(k) into an outside individual retirement account (IRA).*
• Cash out your earnings. Note that taxes and penalties may apply.  

There are pros and cons to each option, so you may want to consider talking with a financial professional to provide guidance on how to allocate assets in your account.

Lost job finance tip #5: Keep up with health insurance

Fortunately, the loss of a job doesn’t always mean an immediate loss of health insurance coverage. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires continuation coverage be offered to employees after termination for reasons other than misconduct or a reduction in the number of hours of employment.

COBRA coverage lasts either 18 or 36 months, depending on the qualifying event, and you’re responsible for paying the entire premium (including the portion previously paid by your employer). Even if you qualify for COBRA coverage, you should consider all your available insurance options. You may be able to find more appropriate or affordable coverage options from another source, such as the Health Insurance Marketplace.

Lost job finance tip #6: Get back in the job market

If it’s been years since you searched for a job, this can feel intimidating. Taking it step by step will help it feel less overwhelming.

• First, update your resume and LinkedIn profile.
• Reach out to your former employer and ask how they would describe the reason for your departure, as that could come up in future interviews.
• Ask for a letter of recommendation, especially if you lost your job for reasons not related to performance.
• If your former employer offers job search assistance as part of your severance package, be sure to take advantage of those resources.
• Figure out how long you can reasonably take to search for a job, based on your savings and unemployment benefits, as well as your spouse or partner’s income, if applicable. This can help you assess how selective to be when evaluating new opportunities.
• Finally, network. Start by reaching out to friends, family and former co-workers and tell them you’re looking for your next (new) opportunity.

While losing your job can disrupt your daily rhythm, it doesn’t have to disrupt your finances. A proactive approach to job loss may lighten your stress when you’re wondering what to do when you lose your job and help you feel more in control of your future. 
 

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