Losing a job poses a major financial threat for most workers. Nearly 80% of American workers live paycheck to paycheck according to CareerBuilder. For them, a loss in income would immediately compromise their ability to meet financial obligations. Even when you have a financial safety net, a job loss can cause significant hardship.
In addition to starting the hunt for a new job, you have to get your finances in order to make up for a reduction of income. Here is how to respond financially to a job loss.
Don’t Panic and Make Hasty
You may have joined—or are about to join—the ranks of the unemployed. Now what?
First, don’t panic. Job loss is a fact of working life in America, even in the best of times. Take a deep breath. You’ll get through this, though it may appear pretty gloomy at the moment. In fact, losing a job may actually turn out to be an opportunity to land a better job or a new career. Don’t make any hasty financial decisions. In times of such stress, it’s easy to make hasty
financial decisions that turn out poorly. So in the immediate wake of your job loss, don’t cash in your retirement plan, sell off long-term investments or move until you’ve worked out a realistic plan for dealing with your reduced income.
Get in the Right Mindset
One of the biggest hurdles after losing a job is getting into the right mindset. It’s traumatic, but without a healthy mental state, it will be much worse. It’s okay to spend a day or so, allowing yourself to grieve.
But don’t let yourself be crippled by fear or self-doubt.
Rediscover a sense of purpose. You need a reason to get out of bed. You also have to manage your expectations. Desperation and bitterness show up in interviews whether you realize it or not, which only exacerbates the problem.
Most of the smartest and most talented people in their fields have experienced rejection and unexpected job loss at some point in their lives. Also, it prevents you from networking. By most estimates, a majority of people found their current jobs through networking.
Determine How You Are Spending Your Money
When times are good, most people do not think about how they spend money. We know how much the mortgage or rent and monthly car payments are, but we don’t pay attention to daily spending. How much do we spend going out to eat? What is our weekly grocery bill? What about utilities and insurance? Being more aware of how you spend your money will cause you to spend it more carefully.
Put a plan together
If you’re facing a layoff, you need to come up with a plan for cutting expenses. Develop a budget that eliminates most unnecessary expenses, but don’t completely cut entertainment. You need to maintain your spirits and keep up with contacts. However, you can cut back on those expenses substantially. Locate inexpensive places to go out to eat and drink. Go to movies instead of plays, and look for discount admissions. Don’t give up the gym but consider joining a less expensive one, unless you use the gym to make business contacts. Turn your thermostat down in the winter and up in summer.
Even if you have a sizable emergency fund in the bank, you should still make cutting costs a priority following a job loss. Get rid of anything that’s considered nonessential spending, such as eating out, new clothes or that premium cable package. Once you’ve trimmed away the extra fat, go back over your budget again to look for ways to cut those expenses that you can’t eliminate entirely. Reducing your water and electricity usage, walking instead of driving and clipping coupons are all good ways to save on your everyday cost of living
Create Alternate Cash Flow
Getting a part-time job may be an alternative as you job hunt, but if loss of income is a result of illness or some other event that makes working impossible, more creative cash-flow alternatives must be found.
If you’ve been thinking about selling your unwanted furniture or appliances, now is the time to turn these items into cash. While selling for cash is ideal, don’t forget that you can donate many items in return for a tax write off, which could lower the tax you owe or increase your refund come April.
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.