Published in: Banks | April 1, 2019
By: Lyle Daly
Unemployment is a big adjustment, but following these steps will keep you safe financially and help you bounce back.
Whether you saw it coming or it was a total surprise, a job loss is a jarring experience. You lose your main source of income, and if you had been in that position a long time, it can feel like you've lost part of your identity.
If you're not careful, a job loss can leave you in dire straits, especially when it comes to your finances. Here's what to do in the aftermath to keep yourself on track.
The first thing to do after losing your job is to file for unemployment. You can typically do this online through your state's Department of Labor website.
By filing right away, you can get any unemployment benefits you're entitled to as soon as possible. Some states also have a mandatory waiting period after you file, so it's important to start the clock on that immediately.
While unemployment benefits will only be a portion of what you made previously, they can at least help you stay afloat and avoid burning through all your savings.
If you've been contributing to an employer-sponsored retirement plan, such as a 401(k), then you'll need to talk to your plan administrator to see what your options are. It's usually best to do one of the following:
The one thing you should avoid if at all possible is taking money out of your plan. If you do, you'll likely need to pay both income taxes and a penalty on the amount you withdraw.
Start looking for any unnecessary expenses that you can cut back on. If at all possible, you'll want to be able to pay everything with your unemployment benefits. Then you can avoid tapping into savings or going into debt.
To get a full picture of your finances, check your banking and credit card statements for the last six months. Going over six months' worth of information may be more work, but it's also much more accurate: Your numbers won't be at the mercy of monthly spending fluctuations, and you can properly account for any annual or semiannual expenses, such as taxes and insurance.
Put every expense into one of two categories: necessities and everything else. Add up the total cost of all your necessary expenses, divide it by six to get the monthly average, and then you'll have good baseline that shows you whether your unemployment will be enough.
This is also a good time to review how much you have in your emergency fund. If your expenses are going to cost you more than you're receiving from unemployment, you'll need to know how long your savings will last. Ideally you'll have several months' worth of living expenses in a bank account so you don't need to stress too much about money.
It happens to all of us. You finally have a day completely free of obligations, and you figure you'll knock out several items on your to-do list. But you decide to check Facebook first, and then you watch an interesting YouTube video shared by a friend, and then you fall down a rabbit hole of related videos. Before you know it, the day is over, and you've done nothing productive.
It's one of life's many ironies: We tend to get the least done when we have the most time to do it. Schedules motivate us to make the most of our days, whereas free time often leads to procrastination.
That's why you should establish a daily routine for yourself. Map out your day, hour by hour, just like you would if you still had a job. For example, you could decide to spend:
The goal is that you get through your period of unemployment without adding any debt. However, if your unemployment isn't covering your bills and your emergency fund isn't sufficient, then your only option will be to borrow money.
Consumers often start carrying balances on their credit cards in this situation, but unless you have a low-interest card, that's not a good idea. Most credit cards will cost you far too much in interest. Instead, you're better off looking into:
Although it's tougher to get approved for a loan or a credit card with no job, it is possible if you still have some form of income. Fortunately, unemployment benefits qualify as income in lenders' eyes.
Losing a job is stressful and something everyone wants to avoid, but most of us will go through it at some point. By sticking to the tips above, you'll put yourself in the best position financially during your unemployment, and you'll stay productive until you find your next job.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool brand that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2020
The Ascent. All rights reserved.