How Be Prepared for Losing Your Job Without Losing Your Shirt
Steps Everyone Should Take Now To Be Prepared for Losing Their Job
Nobody is immune to sudden job loss anymore, and while living in fear is not the answer, being prepared is. If your finances are in order and you have the proper financial safety net in place, you'll be better able to manage unexpected job loss. By being prepared, you can avoid being plunged into unmanageable debt due to the loss in steady income and accepting a job you'll end up hating out of desperation.
Here are 4 steps to take to be prepared for losing your job without being paranoid.
1. Determine Where You Stand Financially
Assess your financial situation before the need arises. Many people avoid making a list of their assets and debts because they're afraid they won't like what they find or they believe they have a good "gut feel" for their overall financial picture. But ignorance is not bliss when it comes to personal finance, and it will only hurt you in a time of financial crisis. So, the first step in preparing for a possible loss of income is to prepare a snapshot of your financial situation, or net worth statement. We recommend calculating your net worth at least once a year to track your overall financial progress and to keep tabs on the big picture. But a lot can change in a year, so re-calculating your net worth periodically throughout the year is not a bad idea.
2. Get a Feel for the Stability of Your Job and Maintain Your Network
Though earlier we acknowledged that layoffs can come as a surprise, there are things to be aware of that can clue you in to possible trouble.
How are your employer's competitors doing? Is your employer experiencing layoffs? The answers to these sorts of questions can be a good indication of the stability of your job. If job layoffs have already occurred where you work, you should have your resume updated and keep your ears and eyes open for possible opportunities that fit your skills.
Being pro-active can be your best asset.
3. Know Your Employer's Job Severance Policy and Other Benefits
Acquaint yourself with your employer's severance policy now. Do laid-off employees receive severance pay? If so, is it based on years of service or some other criteria? Knowing how much you could expect if you're laid off helps you calculate how much you need in your emergency living expense fund. Also be sure to educate yourself about whether you'll be allowed to continue your health insurance benefits under COBRA if you lose your job, and if so, how much that would be.
4. Establish an Emergency Fund
More than ever, everyone should have an emergency or "rainy day" fund. Though financial experts disagree on how many months of living expenses should be in your emergency fund, you should try to base it off of how long it will likely take to find a job similar in skill level, responsibilities, and pay and start there. The last thing you want when you are laid off is to be forced to take a lower-paying or less desirable job simply because you have to. The amount in your emergency fund can be the difference between settling and finding another job where you could be happy. Most personal finance experts agree that six month of living expenses is a good place to start for an emergency fund, but the amount you determine will depend on your person financial situation.
You can determine what that amounts to for you by consulting your monthly budget. Don't have a budget? Creating and monitoring your budget will be the next step.
What to Do If the Worst Happens
Job loss will be much easier to deal with financially and emotionally if you've prepared for the worst. If the worst does happen, here are some additional tips for getting through a period of job loss:
- If you're fortunate enough to receive severance pay, use it as a bridge to get you through your period of unemployment. Spend it carefully, paying the most important things first like your rent or mortgage, car payment, electricity, groceries, etc. Consult your budget and determine what expenses you must pay and which you can go without temporarily.
- Apply for Unemployment Insurance immediately. By waiting, you may reduce your benefits.
- Resist the urge to use your credit cards unless absolutely necessary for critically important expenses.
- Contact your creditors (credit card companies, etc.), tell them you've lost your job but are actively seeking employment, and request an arrangement that allows you to make token or reduced payments for a limited time.
- Organize your job search. Start with updating your resume and asking around your network about possible job openings.
While the financial aspects of losing a job are perhaps one of the largest sources of stress, there can be other emotional aspects you will need to be ready for as well. By being financially prepared, will be better prepared to care for those other aspects while looking for your next opportunity.