Losing a job is a frightening prospect, but staying decisive and proactive can prevent you from entering a financial tailspin. Here are important five steps to take if you lose your job:
Know where you stand. Take a good, honest look at your finances, and identify your debts and assets. Try to price assets according to current market prices–not by how much you first paid. For example, gold jewelry may have gone up in value, while real estate might have depreciated due to a dip in the market. By subtracting your debts from your assets, you can calculate your net worth. Understanding your net worth helps you see your financial situation clearly. When you know where you currently stand financially, you can prioritize any debts and plan for your future.
Rethink your budget. Now that you understand the big picture, you need to sit down and figure out how to adjust your day-to-day spending. Lauren Foster, CPA and member of the AICPA’s National Financial Literacy Commission, says that reduced spending is one of the hardest adjustments after losing a job. Start by analyzing your current spending habits. With the help of your credit card bills and bank statements, record how much you have been spending every month, and assess exactly where your money goes. Decide where you may be able to cut the fat — then trim down your monthly spending as much as possible.
When figuring out your new monthly budget, keep in mind that your emergency funds should last for at least six months, while you look for another job. “This fund needs to contemplate bills that come due less frequently than monthly,” says Foster, ”such as bi-annual insurance payments and life insurance premiums.” You should keep a financial cushion for all your future expenses, including health care and emergency car or maintenance costs.
Follow any legal recourse. Many employee rights are regulated by state law. For example, your state may or may not require employers to administer your final paycheck immediately. State laws determine who qualifies for unemployment benefits, so check with your state unemployment office.
On a federal level, the Consolidated Omnibus Budget Reconciliation Act (COBRA) may help you obtain health insurance after job loss. If you think your employer has violated any anti-discrimination laws or failed to comply to a contractual agreement when firing you, you might be able to take legal action, according to the Department of Labor. Note that severance pay is not required under the Fair Labor Standards Act, but you are entitled to any severance benefits stipulated by company contract.
Apply for a new job. Remember that your current unemployment is only temporary so stay positive and proactive. Ask for personal references as early as possible, particularly while you still have close connections to your current job.
You may be eligible for your state government’s Dislocated Workers Program, which provides assistance for job transitions, including résumé preparation and interview skills. On the financial end, you might even be able to deduct your job hunt expenses from your taxes. While looking for full time employment can feel like a full-time job all on its own, just stay out there and stay optimistic.