Managing Finances After a Job Layoff
What would you do if you suddenly and unexpectedly found yourself out of a job or had your hours cut way back? How would it impact your finances? Here’s what financial experts advise you to do if you if you are ever laid off from your job. In today’s uncertain economic times, many businesses are beginning to lay employees off from their jobs as a way to cut overhead. Even though unemployment is still pretty low, inflation is getting higher. Continuing supply chain issues and interest rates going up all indicate that we are headed for a recession.
Here are some steps to look honestly at your expenses, savings, health insurance, and unemployment benefits.
Look at your finances
You should carefully examine your finances after being laid off. Start by thinking about the resources and savings you have available. Ideally, you have planned for this possibility and have an emergency fund that you can count on while you look for new employment.
Next, you should evaluate your expenses: which of these are optional? What will the cost be for your basic needs such as food, housing, car and transportation, and medical?
After examining your savings and spending, think about what discretionary spending you can eliminate and whether you’ll have adequate funds to pay for all the essentials on your list. If you don’t, consider alternative sources of money you can use. For example, you might ask a family member for financial assistance, start a side business or take on a temporary job.
Apply for unemployment benefits
You may be eligible for unemployment benefits, available through your state and the federal government. Because each state has its own unique program, you will need to register and submit a claim to get benefits from your state. You will probably have a choice of applying in person, online, or over the phone. Eligibility requirements for benefits differ per state, as are the benefit amounts and how long you will be able to receive them. Don’t wait to get started, benefits will only begin when you apply.
Options for health insurance
Because you usually lose your medical insurance coverage when you lose your job, you’ll need to consider the three options that are generally available. If married, you could have your spouse add you to their plan. If single and under the age of 26, your parents can add you. You could continue in the same plan under your employer through COBRA, or go to healthcare.gov and sign up for a plan through the Affordable Care Act Health Insurance Marketplace.
Enrollment periods vary depending on the option you choose. If you decide to go with your parent’s or spouse’s plan, they will need to enroll you within 30 days. Registration for a plan in the ACA Marketplace will need to be completed within 60 days.
To continue coverage under your old job through COBRA can be pretty expensive because you will be required to pay the entire premium, whereas before your employer paid a portion of it. Most people don’t choose COBRA because the other options are more affordable.
Look into other government programs you could qualify for like Medicaid, Medicare, or food stamps.
Should you access your retirement accounts?
Accessing your retirement savings should be one of the last options you consider. All other options should be considered first because most retirement accounts will incur a penalty fee for early withdrawals. You will also be paying taxes on the money at a higher rate than if you wait until retirement age. There are some expenses that qualify for early withdrawal with no penalty from Roth IRA accounts.
Short term or low interest loans
If you find yourself in need of quick cash, look for the lowest interest rates you can find. If you have a credit card with 0% interest it may make sense to use it for needed items.
Jeffrey Ressler owns a boutique, full-service accounting firm in Boca Raton, Florida that provides individualized financial services, expert tax preparation, tax planning for individuals and companies, and finding solutions to IRS problems.