How to Protect Your Finances When You Lose Your Job
Almost everyone will lose a job at some point, and a job loss is difficult and stressful. You may experience feelings of anger and shame, and it may be difficult to pull yourself together.
The best response is to create a plan and to start moving forward. Follow these steps to protect your finances after a job loss.
Address the emotional impact
You need to address the emotions you feel before you can move forward. Talk with friends and family, and lean on the people that you trust for support. Overcoming your emotions after a job loss take time, but you can recover faster when you rely on your personal network.
Review your severance agreement (if provided to you)
If you are offered a severance agreement, read it carefully. This document explains the pay and benefits you are owed, and when your benefits will be discontinued. Make sure that you understand how payments will be made (direct deposit, check), and how often.
Any severance pay that you are offered will be an important component of your personal budget, which is discussed below.
File for unemployment immediately
Your employer has paid into the unemployment system on your behalf while you worked. When you lose your job, don’t hesitate to apply for unemployment benefits.
You are required to actively look for a job when you receive unemployment benefits, but many states are waiving the job search requirement during the coronavirus pandemic. During the pandemic, both the federal government and the states have increased unemployment payments.
While the payments change as the pandemic continues, you may see an increase in your benefits.
Understand your health benefit options
Health insurance is a big concern for many people, particularly those with chronic health conditions, such as heart disease. If you were a member of a health plan through your employer, federal law (COBRA) requires the employer to offer coverage for a period of time. Keep in mind, however, that your insurance premiums under COBRA may be much higher than you paid as an employee.
You can also get health insurance coverage through the Affordable Care Act (ACA). If you decide to work on your own, you can get ACA coverage as an individual.
Transfer your retirement account balances
If you contributed to a retirement plan at work, you can transfer the balance out of the company retirement plan and into an account with a financial advisor. Avoid liquidating any portion of a retirement plan balance to pay your bills. The IRS charges a large penalty if funds are withdrawn prior to reaching retirement age.
Create a budget
Create a monthly budget, using the information you have after a job loss. Here are some of the variables that impact a personal budget:
- Severance payments: Include the dollar amount and dates of your severance payments in your budget.
- Other sources of income: If your spouse works, include that income in your budget, along with any other sources of income.
- Health insurance premiums: If you use COBRA and pay the premiums, your monthly health insurance cost will be much higher.
- Asset sales: If you have assets that you can potentially sell, include the estimated dollar amount of the sale proceeds in your budget.
Putting together a budget will be stressful, since your income may be limited. Do the difficult work of creating a budget, so you know where you stand financially.
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