Getting by without a job, part 1--losing a job

By Philip Brewer on 26 November 2008 (Updated 12 December 2008) 11 comments
Photo: Gaetan Lee

[Editor's note:  If you recently lost your job, take a look at Wise Bread's collection of tips and resources for the recently laid off.]

Losing a job is always tough. During hard economic times--when it may not be possible to find another job as good as the one you've lost--it's even tougher. Here are a few steps you can take right after losing a job to make sure that your financial house is in order, so that you can focus on your job search.

This is part one of a four-part series. This post is on the very first things to do after you lose your job. Parts two through four will be strategies for dealing with the worse-case scenario--what to do if you can't find a job to replace the one you've lost. Look for them here over the next few days.

Having lost several over the years, I know first-hand how hard it is to lose a job. It's insulting--even if you get the little speech on how it's due to economic conditions and not your performance, unless the whole place is getting shut down you have to face the fact that you were let go and other people weren't. It's also frightening--because you're facing a bunch of unknowns.

Many of those unknowns are going to stay unknown for a while longer, but some of them can be figured out pretty quickly. Here's a short list of things I suggest you do right away, to make a few of those unknowns a little more known.

Nail down the cash

I read an article once, by a financial writer who had attended a class taught by a business turn-around specialist. The specialist had asked his students what the first thing to do was after taking over a troubled business. The students had many suggestions--layoff workers, promise workers that they wouldn't be laid off, cut (or boost) spending on R&D or marketing, etc. The specialist, though, dismissed all those suggestions. The first thing to do was to nail down the cash--make sure that nothing gets spent without your approval.

That's also step one if you lose your job. It comes in two phases.

Phase one is making sure everyone in the household knows that spending needs to be taken off automatic. You don't necessarily need to make drastic cuts in spending (although you might), but you definitely need to make sure that every spending decision is a decision, not just an automatic continuation of whatever you were doing before. In particular, make sure you know about any automatic debits that are going to hit your account--and if there are any for things that are non-essential, make sure you know how to get them stopped and what dates you have to take action if you decide that you do want any stopped.

Phase two is to produce a bare-bones budget. You need to know what your household finances will look like if you move to an emergency footing. Your bare-bones budget should include all your unavoidable financial obligations (rent, utilities, groceries, etc.) and should exclude anything that you can avoid or postpone. (I wrote about this a couple of weeks ago in a post called Emergency belt-tightening.)

Just having a bare-bones budget doesn't mean you have to cut your spending to the bone right now (although for some people that might be the wise choice). Depending on your job prospects and the size of your emergency fund, you may be able to phase in cuts to your spending. But you need to make sure that you're in control.

Once you're in control, the next thing to do is to take care of some of those unknowns. There are, of course, a bunch a career unknowns (Will you find another job? Will you have to change careers?), but this post is just about the financial unknowns.

Do a financial projection

You probably came home with a packet of information from your former employer that spells out when you'll get your last paycheck, whether you get any severance pay, and perhaps some info on things like keeping your health insurance in effect. Between that information, the bare-bones budget that you just came up with, and the most recent statements for your checking, savings, and investment accounts, you have most of the information you need to do a financial projection.

First, lay out your expected income. This might include a final paycheck and perhaps a severance payment. If you qualify, it might include unemployment insurance payments (one piece of information that you might not have for several days). If you have substantial savings and investments, you may have some interest or dividends that you can include in your projections. (Don't include any that are in IRAs or 401(k)s that you can't access without paying a penalty.) If you have some sort of side business, include estimated income from that. If your spouse works, include the income you can expect from his or her paycheck.

Against your projected income, lay out your barebones budget. If your income exceeds your expenses--congratulations! You're done. You can skip the rest of this and get on with your job search.

For most people, though, losing a job means that their expenses will exceed their income. If that's the case for you, mark down on your financial projection a series of transfers from savings that fund your bare-bones spending.

Of course, your savings only goes so far. Make a note of the date that you can expect it to run out, if you don't come up with either some additional economizations or some additional cash.

Now that you know how long you've got, the third thing I suggest you do is to make a plan for how you'll use that time.

Set some deadlines

You'll probably begin by looking for a job that's at least as good as the one you've left. With luck, you'll find one quickly. I suggest, though, that you set a date when you'll expand your search to include jobs that are a step down, and perhaps a second date when you need to start looking seriously for any kind of work you can get.

If you have assets that you might be able to sell--in particular, stocks or mutual funds that aren't in a 401(k) or IRA, but also things like a car, a motorcycle, a boat or a house--make a schedule. Figure out when you'd need to get the money from such a sale in order to keep your bare-bones budget funded, then estimate when you'd need to put the item up for sale in order to reasonably expect to have the cash in hand on the date you need it. (That's an easy calculation for stocks--the sale settles in three days and you can probably have the cash transfered to your checking account within two days after that. For something like a boat or a motorcycle, you might have to figure that it'd be impossible to sell it until spring.)

One result of this planning will be an estimated date for when you'll be completely tapped out--no assets, no savings. There are things you can do to address such dire circumstances, and most of them are easier if you do them before you're flat broke. Pick a date some weeks earlier as the date that you'll start taking drastic action (such as not paying the rent or utility bills), in order to conserve cash. That's strictly a short-term move, and an expensive one at that--you'll end up owing even more due to late fees and charges--but being evicted is a little easier to handle if you've got some cash than if you've got zip.

After the planning

It may seem morbid and depressing to look that far down the road as soon as you lose a job. The advantage, though, is that you don't have the uncertainty hanging over your head all through your job search. You've already decided when you'll need to take any drastic measures. Until then, you can focus on your job search.

The rest of this series is what to do in the case that, as sometimes happens during hard times, you don't manage to find a job to replace the one you've lost.  Check out:

 

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Guest's picture

If I gave a priority to these, I'd have to say that your first point of nailing down cash is the absolute most important. If you can cut your spending in half then you've just doubled the amount of time you can go with out work. It isn't hard to do really. The hardest part is breaking old habits and making new ones. It's a daily chore to remind yourself again every day of money saving habits, but it's worth it. Little things are best to start with, like cut out the trip to the convenience store for a snack. Stop renting movies. All these little things add up along with turning off lights,etc. I think self discipline plays a large role here.

Guest's picture
Linda

There's some really good advice here. My husband has just been told he's to be laid off in the New Year and he's still reeling. He feels angry and hurt at the same time especially as some of his collegues are remaining. It's "why me"

I feel you need to let as many people know as possible. So many jobs are not even advertised they are often filled by word of mouth.

Someone has put him on their company job mailing list and he's already had some details come through.

Guest's picture
Nate

Losing a job is definitely tough. I went through it two years ago. Got to have a good head to get through it in one piece.

Guest's picture
funkright

it truly amazing how much money you can rip out of your spending routines.. it's also truly amazing how emotional this whole process is.. I know it wasn't me, but sh*t, it still is a blow to the ego, all-in-all.. we're going down to 1 car in 2 days (letting the insurance laps on the larger vehicle and just sticking with the econobox).. the kids music lessons are no more until it gets better again..

the wife isn't just working 2 days a week to keep herself 'occupied', she's taken on another part time job (crap wages, but it's only for money for right now).. I have employment insurance for 10 months, but it's effectively less than 40% what I used to CLEAR every month.. it doesn't even cover the mortgage payment.. I took the little severance I received, along with the last pay periods and shoved it in another account, to create a nest of sorts; it will slowly erode, but at least provides a backup to pay the minimums right now, until things improve..

this has been a time of forced introspection and I keep thinking I should be starting something on my own (to be less dependent on 'the man' in the future), but I just can't seem to come up with what it is I should do..

anyways, the article is pertinent, that's for sure, and appreciated.

cheers :-)

David DeFranza's picture

With news of layoffs all over, this has definitely been on my mind.

Great advice Phillip and and excellent companion to your "firetruck" articles, which I love. Reading "Figuring the size of your emergency fund" convinced me to start one myself.

Looking forward to the rest of the series.

Guest's picture
Guest

For those who have some advanced warning of impending job loss:

Don't forget to make maximum use of benefits while you're still working. If your dental insurance covers a cleaning and exam, for instance, get one now. Get all your medical care up to date, get prescriptions refilled, etc. Of course, keep an eye on what you'll pay out of pocket in copays and uncovered charges. This isn't the time to get a fancy new pair of glasses that will cost you a lot out of pocket, but it might be the time to get the lenses in your old pair replaced, if that's covered by your vision insurance.

You don't want to be going into unemployment with a lot of "deferred maintenance" on your body... Take the very best care of yourself now.

Guest's picture
Guest

In calculating your minimum budget, be sure to take into account that your health insurance premiums will go up when you start COBRA.

If you don't have preexisting conditions, it might be a good time to start shopping around for high-deductible private insurance. But don't forget that you have a limited time in which to sign up for COBRA; don't miss out on that opportunity. Winding up without health insurance will *greatly* increase your economic risk.

Guest's picture
Mom of 6

not able to find work in his field. It's a relief to see the same steps I followed suggested. I've never been through this before and it's daunting to look at six kids and a mortgage with no income. Hubby's field is shrinking daily, with more and more layoffs, companies going under and projects being turned away by the few successful houses left. But at least I seem to be on the right track. Thanks for the piece of your mind, and a little peace for mine, Brewer.

Guest's picture
Sawa

I got laid off recently, and I have been focusing mainly on what I want to do with my life and not so much on the financial side of my life. So this is a very practical advise.

Guest's picture
Doug

Great article, Philip. I particularly liked your advice to "nail down the cash"--this is exactly what my wife and I did when I decided that I was going to quit my job. I knew more than a year in advance that I was going to quit at some point, so my wife set up a budget and we began cutting our expenses *before* I left my job, so that we could get a feel for how long we could make it on just her income, and to put some money away into savings. This also gave us a better idea of what it would be like to live on a significantly-reduced income (and frankly, it hasn't been that hard). I left my job eleven months ago, and in that time I've had the freedom and flexibility to create a new business for myself and pursue a new career path, thanks to my wife's wisdom and planning.

Guest's picture
Rosa

If you sit down and work out a barebones budget ahead of time, when it's theoretical, then you aren't making financial decisions when you're upset.

It's also a good idea to look at what you would need to cut if you lost your job, and set it up so you *can* cut it - see where you can go month-to-month instead of having a long term service contract, learn skills you currently pay for, make contacts you'll need later.

As the lower-earning partner in a two-income household, it was important for me to work out the numbers and see if we could survive on just my income (the answer is, we could, but it would be hard). It was a big relief for me to have a plan in place, and I think it takes a burden off my partner too, because now he knows we won't be homeless or hungry if something happens to his job.