Layoffs have become more common during the time of COVID-19, and many families are struggling with the abrupt changes to their income and lifestyle. It’s an emotional time, and the stress of it can cause you to make rash decisions, especially regarding your finances. But decisions made under duress are often not good ones, so take a deep breath and consider taking these steps before doing anything else:
Take Immediate Action
File for unemployment insurance right away. You should file for benefits as soon as you can confirm the status of your termination. If you were fired or resigned, you will not be entitled to benefits.
Scrutinize your severance package. Ask for any offer in writing, take it home, and look it over carefully. Check it against your employee handbook to make sure you’ll get the benefits assured you, including any paid time off or promised bonuses. Consider talking to company colleagues to see what they were offered. If you have questions about language or terms, consult with your Smith Anglin advisor. Make sure you understand exactly what you are accepting.
Don’t be afraid to negotiate your package with your employer. Ask your company to credit you for your individual work or special skills. Be professional, not greedy, and keep in mind that you may need to contact your employer for a letter of recommendation someday.
Make sure you have health insurance. It’s never a good time to not have health care coverage for you or your family. Call your HR department to find out if your employer will continue your health insurance coverage or allow you to convert your benefits to an individual policy. Look into COBRA coverage while you’re at it. It can be expensive, but it’s an easy switch and often an appropriate placeholder, and you’ll get to keep the benefits you already have.
If your spouse is still employed, it could make sense to switch to his or her plan, but do so within 30 days or you’ll have to wait for that plan’s open enrollment period to be added to their insurance.
You can also purchase a healthcare plan on your own. If you do so, research it carefully. Unexpected and uncovered medical bills can be devastating to your finances, and to your health.
Don’t drop your other insurance coverages before you’ve considered all of the pros and cons. Life and disability insurance can be critical to maintaining your family’s standard of living. Imagine leaving your family without the money they need, or not being able to pay your bills after becoming disabled. Your former employer may be able to convert its group policy to individual coverage for you.
Look for work. This is easier said than done, especially now, but it’s still important to plant seeds for the future. Connect with colleagues and friends on LinkedIn and via other networks. Polish up your resume and put it out there. Network, network, network.
Develop a Plan
Create a short-term spending plan. Do a cash flow analysis of your income and expenses. What will your income be for the foreseeable future? What expenses are absolutely necessary? What can you give up or postpone?
Fill any financial gaps. You may be at a deficit once you’ve subtracted your expenses from your income. Can you cut or defer any more expenses? Consider short and long term changes to your spending habits. Do you have mortgage, job loss, or credit card insurance that can assist you?
Consider alternate sources of income. Perhaps you can rent a spare room, or seek out a temporary part-time job. Don’t overlook government or private assistance if you need it. It’s there just for times like these.
Don’t withdraw money from your retirement accounts. If you do, you’ll lose money to taxes and possible penalties. And you’ll lose the ability to earn tax-deferred growth on the money you withdraw. Emergency savings are for difficult times and should be used before touching any other accounts.
Include your family. Communication is especially important during uncertain times. Talk to your family while developing a plan. Ask them for suggestions, and for help in supporting your new plan.
Develop a long-term financial plan. Once you’ve got your immediate financial situation under control, create a long-term plan. Include the cash flow analysis you performed, and then take other details into account, including your assets, investments, taxes, future expenses (like college tuition for your children), and future income (like Social Security and pensions). Your Smith Anglin advisor can help you make sure you’re considering everything necessary.
Try to Avoid Taking on Debt
If your expenses remain greater than your income, it can be tempting to tap credit cards to make up the shortfall in income. Do your best to avoid doing this. In fact, minimize your current debt as much as you can. Can you get rid of debt by selling a car, boat, or vacation home? Can you ask creditors to extend loan periods? Can you use your home equity to pay off loans with higher interest rates? Can you consolidate debts? Make certain, of course, that any new loan payment is lower than the sum of the old payments.
Remember that bankruptcy should be a last resort, as it will mar your future credit for years.
Consult Your Financial Advisor About Retirement Plan Decisions
(and the Rest of Your Finances)
Your company retirement plan may be your biggest financial asset, and hasty action could be costly. Before taking any steps, consider them carefully and consult with your Smith Anglin advisor. You can discuss pros and cons of any decision and chart a plan of action. A knowledgeable, objective advisor is especially valuable during stressful times, as they can help you avoid decisions that may hurt you in the long-term.
Your advisor will also take your long-term financial plan into account and may have suggestions about investments, pensions, or Social Security that you may not have considered.
At Smith Anglin, we understand that your financial life impacts the rest of your life—and your families’ lives, health, and happiness. That’s why we offer ongoing, comprehensive financial planning to all of our clients. We not only help manage your investments, but we offer expert financial advice for the unemployed and on navigating the other twists and turns of your life. We help you set a course that steers you toward a more secure financial future and guide you through any unmapped territory, like a job loss. We’re here for you.