Just Lost Your Job? Here's What You Need to Do Financially

Unemployment is a big adjustment, but following these steps will keep you safe financially and help you bounce back.

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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.

Apply for unemployment

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.

Decide what to do with your retirement plan

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:

  • Roll it over: Open an individual retirement account (IRA)and have the funds from your previous plan directly transferred to that IRA without paying any penalties or taxes.
  • Transfer it to a new employer plan later: Wait until you find a new job and get a new employer-sponsored retirement plan, and then transfer the funds from your previous plan over. By working with each employer's plan administrator, you can arrange a direct transfer between the accounts. That simplifies the process and helps you avoid paying taxes and penalties.

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.

Revamp your budget

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.

Set up a daily routine

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:

  • 9 a.m. to noon searching for and applying to jobs
  • Noon to 1 p.m. eating lunch
  • 1 p.m. to 2 p.m. working out
  • 2 p.m. to 4 p.m. building your network
  • 4 p.m. to 5 p.m. improving your resume, website, and/or work-related skills

Be careful about going into debt

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:

  • Personal loans: Many of the best personal loans offer low interest rates.
  • 0% intro APR credit cards: These cards charge no interest during an intro period, often a year or more, so you only need to make your minimum payments. The interest rate does go up, and often quite a bit, after the intro period ends, so you'll need to focus on paying off your balance as soon as you're able.

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.

Making it through unemployment

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.