Surviving Job Loss
"Surviving Job Loss
By Sheryl Nance-Nash
There's no shortage of bad news on the job front these days. With the uncertain economy it seems every week there is yet another lay-off announcement. It’s not just the dot-coms where some 55,000 jobs have vanished, but companies like Lucent LU, Motorola MOT, Daimler Chrysler DCX and Goodyear GT are laying off tens of thousands as well. The reality is, you never know if you're next. If you do get that pink slip, hopefully you have an emergency fund, some six months worth of expenses to draw on. Financial planners have been preaching the case for emergency funds forever. If you weren’t listening, here are some strategies for staying afloat during what could be a very tumultuous time.
The First Order Of Business
Find out from your local unemployment office whether you qualify for unemployment compensation. If you've been downsized, your company merged or you were laid off, you probably do.
Secondly, check with COBRA about your medical benefits. COBRA allows you to stay in your employer's group medical plan for 18 months, though you'll have to foot the bill. It's important to take care of this almost immediately, as you must sign up within 30 days of a job loss.
With the ax comes the loss of benefits like life and disability insurance and your 401(k). Single people generally won't need to worry about life insurance, but for those with a spouse or family, life insurance is a big issue. Can you convert your group policy to an individual one? Consider, especially if you think you could be out of work for several months, a cheap, one-year term life insurance policy, says Matthew Reading, a certified financial planner with Austin Asset Management in Austin, Texas, ( www.austinassetmanagement.com). Hopefully, after a year, you'll be back to work.
The disability issue is a nettlesome one. You have no income to replace so in this case, you might have to cross your fingers and hope that nothing happens until you get a job, or look to Social Security, if something does.
If you're part of a massive lay-off there may not be room to negotiate. But do make it a full-time job to be sure you get the best deal for yourself that’s available. See what kind of severance package you can get, whether you can take away unused sick time or vacation days, suggests Eileen Sharkey, a certified financial planner with Sharkey, Howes & Javer in Denver, ( www.shwj.com).
Many financial planners recommend that you rollover your 401(k) into an IRA. In the worse case scenario, if that money is in an IRA you can take a hardship withdrawal without penalty, says Reading. "It's obviously not your first choice, but if you have kids that need to eat, it's a lot better than using your 20 percent interest rate credit card," he adds.
Think about whether you want a conduit IRA, which allows your stash to be rolled over into a new employer's plan. You might want those funds back in a 401(k) plan if you need to borrow against it, say if you want to make a down payment on a house when you're on your feet again.
Assess where you are financially. Find out what your balances are in your checking, savings and money market accounts.
Develop an austerity plan, says Dudley Barnes, a certified financial planner with Barnes Pettey & Associates in Clarksdale, Mississippi. "Decide what you can live without for a short period of time. If you planned a vacation, cancel it, even if you've already paid a portion," says Barnes.
Immediately look for ways to cut back spending. "If you eat out a lot, reacquaint yourself with the supermarket," says Nancy Frank, a certified financial planner in New York City.
Resist the temptation to turn to plastic. "Too many people go into denial and run up their credit cards because they feel bad and they feel they deserve something to make up for it," says Sharkey. Kiss charge-itis goodbye. One of the worst things you can do is run up a lot of debt that you can't pay back.
In order to make austerity work, you have to be honest with yourself and your family. "Maybe your teenager is used to getting money every week for allowance. Cut back on that too. You can't pretend life is the same," says Kay Johnson, a certified financial planner with Linsco Private Ledger Financial Services in Erie, Pennsylvania (www.lpl/kay.johnson ).
By all means, don't view this as a vacation of sorts. Though you're likely feeling badly, now isn't the time to take a big trip to Europe and solve everything when you get back.
Fess up too, to creditors. Let them know your situation. They may extend payments or otherwise work with you. "Creditors are usually willing to make arrangements because they prefer that, to not being paid at all. It's a lot harder to deal with creditors after you've missed payments," says Barnes.
Look For Ways To Create Cash
While you'll be busy networking like crazy, taking advantage of any outplacement services offered by your employer — doing everything you can to find another job, don't overlook part-time, temporary or freelance work. Can you can turn hobbies into cash? What can you sell? You might hate to part with precious art or collectibles, but if you're short on options, what choice do you really have? Are there any investments you can tap? Be mindful however of the tax consequences. When you're reviewing your shorter-term investments, assess whether you should take a more conservative route given the fact that you might need that money sooner rather than later, whether the market is up or down.
Do you really need two cars? If one of them has a lot of equity, consider selling it and doing without a second car or buying a cheaper one. "If you're unemployed, you don't need two $40,000 cars," says Johnson.
Tapping your home equity is another alternative. The interest is generally deductible and rates are competitive these days. But if you can't pay it back, your home is at risk. You don't want to be jobless and homeless.
Says Reading, "Do anything you can to create income. Sitting at home under a blanket eating Haagen Dazs does you no good." Reach out to families and friends for support, but don't expect that they will bail you out. For a good resource, pull up How to Survive a Job Loss on the non-profit group Myvesta.org's web site (www.myvesta.org). Says Sharkey, "Lee Iacocca likes to talk about how getting fired from Ford was the best thing that happened to him. If not, he never would have started Chrysler or any of the other great things he has done. Though this may feel like the end of the world, it isn't.""
<Note from JobFairy.com: If you think layoffs are in the future, don't wait to look for another job. Don't wait to cut back your spending either. Refinance now if it might benefit you, because they probably won't do it if you're not employed. Tell them you will use the money to remodel your house. Pay off as much debt as possible before you're laid off. Once you're laid off, make the minimum payments on everything and don't spend a penny except for emergencies. Make sure that you don't use your work computer to look for a job in any way, and that you don't synch your PDA to your work computer if you're keeping interview appointments on the handheld. That way, with any luck, you'll get the big layoff package AND a new job within days of being let go. They'll wait for you to quit on your own if they think you're looking. So don't let them know.>