How to Avoid Financial Disaster When You Lose Your Job
Lost your job? Take these steps so your career setback doesn't devastate your finances.
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Most people depend on income from their jobs to do all sorts of important things, such as pay bills and save for the future. That's why a job loss can be so devastating to your finances. A cut in income could make affording your lifestyle difficult and have serious long-term consequences for your financial stability.
The good news is, there are steps you can take to avoid financial disaster when you're no longer receiving your wages. Here are five of the key steps you should take ASAP to try to mitigate the impact a job loss can have on your money management.
1. File for unemployment
Unless you were fired for cause or had the job only for a very short time, chances are good you'll be eligible for unemployment benefits. These benefits can pay a portion of your wages and help keep you afloat until you find a new source of income.
It can take time to get benefits started though, so submit your claim ASAP. In most cases, you can submit a claim online with your state or file by phone.
2. Investigate your options for healthcare
For many Americans, health insurance comes from employers. You cannot afford to go without healthcare coverage even for a brief time because a single illness could devastate you. So if you were covered by your employer's plan, you need to look into your options ASAP.
You should qualify to keep coverage through your employers plan under COBRA, which is a federal law that entitles you to at least 18 months of continued insurance coverage. But your employer won't pick up any portion of the premium cost once you're no longer working for them. This means your premiums could rise dramatically if they were previously subsidized.
Keeping existing coverage through COBRA may not be the best or most affordable approach, so check out all your options. This could include getting covered on a spouse's plan, signing up for a plan on an Obamacare exchange that may come with subsidized premiums, or qualifying for Medicaid if your income is low enough due to your job loss.
Losing employer-provided coverage is considered a Qualifying Life Event that entitles you to sign up for a new healthcare plan mid-year, so you don't have to wait for open enrollment to sign up.
3. Take a close look at your budget
While unemployment benefits can replace a portion of your income, you won't get your full wage. This means you can't keep spending as you did while you were working.
Instead, it's time to make dramatic cuts. You don't know how long your period of unemployment is going to last, so the sooner you slash your budget to the bone, the longer you can last on savings and a lower income.
Cut out everything unnecessary that you can, including dining out and most types of entertainment. It won't be fun to live on a bare bones budget, but you'll be very glad that you took extreme measures to preserve your money when your job loss doesn't leave you drowning in credit card debt.
4. Explore all your options to avoid borrowing
If you find that you can't cut enough to survive on unemployment alone, consider any possible solution that you can to avoid reaching for the credit cards. Otherwise, once you find a new job, you'll be left coping with the lingering consequences of unemployment for months or even years as you waste part of your paycheck on interest charges.
This may mean taking drastic measures such as getting a roommate so you have income coming in, or even subletting and moving back in with mom and dad until you've found new work.
You could also consider a side gig that brings in at least some cash to help you avoid debt -- but be sure you know how much you're allowed to work before unemployment benefits are affected.
5. Tap into your network to find new work ASAP
Finally, you'll want to do everything you can to find new work as soon as possible so you don't face a period of extended unemployment that it's hard to recover from.
Hop on social media and reach out to friends and family to let everyone know you're looking for work. Finding a new job through someone you know is much easier than getting hired without an in, so there's absolutely no reason not to tap into your personal and professional network when looking for work.
Don't let a job loss destroy your financial stability
A job loss can be discouraging, and it can sometimes take too long to adjust to the shock of losing your income. Don't let this happen to you. The sooner you cut expenses, explore options for other sources of income, and start searching for new work, the less of an impact this temporary career setback will have on your future financial stability.
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