When The Bough Breaks: Planning for Unemployment

By A. Black, on June 23, 2010

Yesterday I received the news that so many others have heard, my job will be coming to an end. Luckily, my boss was very kind, and has alerted me three months in advance with the hopes that I will be able to find something else. At this moment I’m hoping it will give me the opportunity to get my business ramped up. There are a few things that you should immediately do when you find you are facing a layoff or termination. You should start this the minute you hear the whispers in the office.

Photo by Daquella manera via Flickr

Unemployment

Do you qualify for unemployment? Most states have websites that will list the requirements for obtaining unemployment, but it’s still a good idea to call and confirm. When my husband got a job and we moved from Nevada to Oregon, I had to quit mine. Since I resigned, I didn’t realize I still qualified under a spousal transfer provision. It made it much easier during those three months where I couldn’t find a job. Unfortunately I currently work as an independent contractor and will not qualify for unemployment. It puts a little bit of extra fear into me knowing I won’t have anything to supplement my husband’s paycheck, but hopefully that will be a motivator.

Severance

If layoffs have been happening for a while, you may know if your company will be offering a severance package. I think many of us would love at least a two week golden parachute, but it just doesn’t happen for most of us. Consider your severance to be an immediate emergency fund until your next job. You don’t touch it unless your utilities might be shut off, there’s nothing in the cupboards, or you might be evicted. You can better control your money if you…

Revisit Your Budget

The second I found out I would be unemployed starting October 1st, I looked at my budget. If you’re smart, you already have an emergency plan in place to reduce your expenses. While my husband and I already had an emergency budget, it’s a few months old, and we’ve had several changes. There were certain line items that would automatically go away when my job does, like taxes and parking. Other easy cuts are food and gas. We won’t be dining out, and I won’t be driving to work. Things you might have missed:

1. Auto Insurance: Your insurance has a basis in how many miles you drive. If you’re mileage is dropping substantially, call your insurance company and ask them to review your rate.
2. Credit Cards/Debt: While you still have verifiable income, call your credit card companies and ask for rate reductions, and look for balance transfers that are less than you’re paying (remembering to include the transfer fee in your calculations).
3. Student Loans: I can put my student loan into an unemployment deferment. While not optimal, I’d rather be in deferment than default.
4. Health Insurance: If your company offers health insurance, they may offer a COBRA, but COBRA is very expensive. If you’re in good health, you probably want to purchase an independent policy instead. You may also be able to get health insurance for your children through a state assistance program. Do your homework. I’ve yet to meet anyone who could afford COBRA when unemployed, but I’ve yet to meet anyone who felt they could afford to be without it.

Start an “Interim Emergency Budget”

My poor husband doesn’t know it, but we’re starting the slash and burn now. We’re going to a cash envelope system. We’re stopping dining out, paying only the minimum payments on credit cards. If we pay only what we have to, we can start squirreling away cash. Even Dave Ramsey, the King of paying off debt, says if you’re facing a major life change (like a baby or known job loss), you put your debt repayment on hold and stock up cash until the crisis has passed. This allows us to…

Build The Emergency Fund

Hopefully you already have an emergency fund in place, but if you don’t, start putting everything you receive toward it. There is no such thing as too much in the emergency fund, but even if you can only get a few hundred into it, it’s better than nothing. We maintain at least 1 full month’s expenses or 4 month’s rent in ours. Every bit I can push towards it right now will be extra comfort and security.

Start a Side Hustle

Start building a “side hustle.” Creating a part time way to make money is an excellent way to start building additional funds, and it also helps you regain a measure of control in an out-of-control situation. The empowerment alone from knowing you contribute to your own destiny will help carry you through your personal “downturn.” If you’re really lucky, your side hustle can take off, and you won’t need to find another “job.”

Take A Deep Breath

Luckily my husband is very even keeled and reminded me this is not the end of the world. I am also apparently “not allowed to stress out for at least 10 weeks.” Wise advice as stress will not help the situation. It will paralyze you, and could keep you from making the smart decisions that will improve your situation.

A layoff or termination is not the end of the world, and it’s not the end of your life. We no longer live in the days where people retired from the same company they started working for out of high school/college. It can unfortunately be expected that a termination or layoff will occur at least once in your life. Being prepared will soften the blow.

A. Black writes about graciously building wealth through thrift and putting the stereotypical notion of a "tightwad" on its tush at Modern Tightwad. For frugal tips and money management solutions with a tightwad twist visit her website or subscribe to her feed..

Add Your Question or Comment (6 Comments)

1. Kim:

   June 23, 2010 at 8:39 pm

   AB I’m so sorry to hear about your situation.

   You definitely need to do the slash and burn and change your spending habits immediately. Your husband’s advice is very wise about giving yourself time to think. He must have read my mind. I wrote about that 2 months ago.

   One of the things that I would advise you to do is pretend that you won’t get another job for a year. What will you guys need to do differently. In this recession, people are taking longer to get jobs and it’s better to be prepared. The worst case scenario is that you get a job right away and now have a great budget that gives you money to invest for a year.

   I wish you the best of luck,

   Kim
2. A.B.:

   June 23, 2010 at 9:13 pm

   @Kim: Thank you for your kind words! The blogosphere never fails to be supportive in times of stress. We are very lucky to live extremely frugally as is; while that means there isn’t a lot left to cut, it does mean we will be able to survive on my husband’s salary and if necessary our savings for several months. I do, however, have a tendency towards extreme panic so having a plan makes things go a much more smoothly. I love the thought of planning on not having a job for a year. Anytime you can reduce your expenses to one income it’s a less stressful way to live.
3. Financial Samurai:

   June 23, 2010 at 11:06 pm

   AB, sorry to hear about your loss. What is it that you do for a new reader like myself?

   That is great that your boss has given you a 3 months heads up! Usually it’s just 1 week or less!
4. Kim:

   June 24, 2010 at 4:02 pm

   AB,

   My personal opinion is that we’ll see more unemployment next year when businesses reassess for the costs of all the new regulations.

   In addition, housing will have more bad news to deliver. No one is talking about inflation and ignoring it.

   It’s just safer to plan for the worst.
5. A.B.:

   July 1, 2010 at 10:14 am

   @Financial Samurai: I’ve been thinking about your question quite a bit. What is it that I do? I’ve been working as an independent marketing specialist, but I have a couple “side hustles” as well. I think I’m a “jill-of-all-trades.” In this economy that has been helpful, but I think I am most hopeful that one of my side hustles will become my primary source of income.

   @Kim: It is always best to plan for the worst case scenario, then anything else is a bonus.
6. Financial Samurai:

   July 1, 2010 at 8:08 pm

   Best of luck to you AB! Perhaps you will join the Yakezie Lifestyle clan one day after the site is launched in mid-August.

   Best, Sam