Sudden Job Loss

Posted on August 16, 2005 19 Comments

Losing your job is never fun. But it could be disasterous if you don’t see the loss coming or are unprepared financially. Tribune writer Carolyn Bigda listed four solid points of advice in her weekly column “Getting Started” that everyone should read. I’ve pasted her article below.

Before pasting her article, I’d like to reemphasize a savings rule of thumb for Budgeting Babes: Your rainy day fund should be enough to support you for three entire months of unemployment. Period. Work to save and earmark this money whenever you can. You’ll be in a much better position if you loose your job suddenly.

Adding to Carolyn’s points, here are some quick additions that Brian and I have found helpful through periods of unemployment:

1. Cut expenses where possible. Can you reduce your number of phone lines? I’d consider ditching your land line and consolidating all calls to your cell phone. We don’t have a land line anymore – this arrangement works fine for us.

Do you really need digital cable with premium channels? If not, downgrade to a lower package. You can also try calling your cable company and asking for the latest advertised deal. We recently reduced our cable bill by more than 60 dollars per month this way!

Accept that your social life will change until you have a job again. Less dining out, more homemade pasta dishes. Less movie theater nights, more Blockbuster rentals. Limit your nights out to one per week, if any. Only take cash and only spend what you bring. Be realistic – if you can only afford one drink, only buy one drink.

Defer your student loans.

Look to avoid the steady stream of small but numerous “luxury” expenses that most of us take for granted. Take your operation “in house” – make your own coffee, do your own nails and dye your own hair. (FYI – I don’t advocate dropping “personal maintenance” activities completely. No matter your industry, you need to appear confident and professional when interviewing for new jobs. However, if your funds don’t allow for this spending, cut it.)

2. Rebudget immediately. You no longer have a cash flow. Determine how much you must spend per month to cover your bills, your rent and necessary living expenses (groceries, for instance). This is your new spending plan.

Determine how many months you can live on your spending plan before running out of cash completely. This will tell you whether you can afford to be picky or if you should just take what comes along first.

If you’ve got a cushion saved, you may want to consider your job hunt a full-time profession. Consider this option carefully to determine if you can realistically do it. The goal is to limit time spent unemployed to stop resume gaps and ensure you stay fresh in your professional field. However, if you don’t have a cushion, or the job market in your field is flat, take that temp job or waitressing gig. (What are your thoughts here? Clearly this approach won’t work for everyone.)

3. Develop a job search plan. Blanket your personal and professional contacts with e-mails, phone calls and in-person visits. Consult with your alma mater’s career office – many Universities offer free career assistance to alumni, even those who graduated a while ago. Be sure to frequently scan all your local news papers (not just one) and use the Web to search job sites like Monster and Hotjobs. I also recommend checking Web sites of companies you’d like to work for – not every company externally publishes their open positions.

GETTING STARTED:
Sudden job loss calls for crisis control
By Carolyn Bigda
Your Money staff reporter
Posted August 14, 2005

Imagine walking into your office, as always, and discovering that your desk has been cleaned out; your department is shuttered and locked; or you have 30 minutes to collect your belongings and leave.

Would you be able to cope with unemployment?

Although companies are hiring–unemployment stood at 5 percent in July, down from more than 6 percent two years ago–the job market is less than robust.

And there’s always the risk that your employer will defy statistics: Technology giant Hewlett-Packard Co., for instance, announced last month that it would eliminate about 10 percent of its full-time workforce.

Here are four must-dos if you suddenly find yourself without a job:

– Get government help.

First, file for unemployment insurance. Benefits are doled out by state agencies and therefore laws will vary depending on your residence. But, in general, the amount you receive–often for up to 26 weeks–is based on your income immediately preceding that date you file a claim.

In addition, your job loss must be no fault of your own, and you have to be actively seeking employment. For links to your state’s rules, go to http://workforcesecurity.doleta.gov/map.asp.

Unemployment benefits are subject to income tax. In filing your claim, you may want to specify that taxes be deducted from the check. Otherwise, “be prepared to pay extra when you file a return,” said Linda Forman, a certified public accountant in Evanston.

– Stay insured.

Unless you receive a severance package that extends your health insurance temporarily, your next priority should be to find new coverage. Even if you’re in the best of health, an unexpected medical emergency could lead to thousands of dollars in bills.

If your employer sponsors a group health plan for 20 or more employees, you’ll be given the option to extend that same coverage under Cobra. The only difference: Your employer will no longer pay any of the premium, which averaged $308 per month for individuals in 2004, according to the Kaiser Family Foundation. Instead, you’ll have to pay 102 percent (the extra 2 percent covers administrative costs).

As a cheaper alternative, consider purchasing high-deductible, individual health insurance. Although these plans may not be as comprehensive as your former insurance, premiums average only $112 per month for singles.

Search for plans through www.ehealthinsurance.com.

– Preserve your 401(k).

“Try not to raid your 401(k),” said Nancy Collamer, a career counselor in Greenwich, Conn., who wrote “The Layoff Survival Guide” (www.layoffsurvivalguide.com, $17.95). “It’s very tempting to do if you lose your job, but there are certain penalties.”

In fact, you’ll pay a 10 percent fee, plus income tax.

Hang on to your savings by transferring your 401(k) to an IRA. Make sure it’s a direct rollover, in which your employer writes a check to the IRA trustee. If you receive the money, you have only 60 days to transfer it to a rollover IRA before incurring taxes and fees.

Without your direction, employers can cash out balances less than $1,000–larger balances could be left in the 401(k).

It may seem ridiculous to think of retirement when you’re struggling to pay bills now. But concentrate instead on ways you can reduce your expenses first.

“My husband was out of work for almost a year,” Collamer said. “It was amazing how we discovered things, like that the local library had a great collection of videos” for free rental.

– Stay on top of your bills.

Prioritize secured loans, such as a mortgage or car loan. Apply to lower your monthly payment on student loans or defer payments temporarily. Transfer a credit card balance to a zero-percent rate card.

If you’re worried about missing a payment, contact your creditors immediately.

“Lenders don’t want you to lose your home,” Collamer said. “But establish the communication before you hit a crisis point.”

E-mail Carolyn Bigda at yourmoney@tribune.com.

* * *

Now, admittedly, both my tips and Caroline’s apply much easier to young professionals with no kids. I know it’s much harder if you’ve got a spouse and a few kids to support. I’d love to hear strategies for dealing with sudden unemployment from those who fall under a different demographic than myself. Feel free to post your tips.

Category: Career, Money
   Tags: job search , recession

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I'm a working girl on a budget. Follow my journey from chronic overspender to power saver!

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