3 Financial Planning Tips If You've Been Laid Off

Getting laid off is really scary.


One moment everything is good, then suddenly you're worried about whether you'll be able to find another job and maintain the lifestyle your family is accustomed to.


In this article, I'll share 3 financial planning tips you can use to get back on your feet after you've been laid off.

Disclaimer: This is educational and not advice. Before making any financial changes, I highly recommend consulting with a licensed professional to ensure it makes sense for your unique financial situation. I am happy to help, or you can find an unbiased directory here: BrokerCheck


1. Re-evaluate your budget

Being laid off is temporary. On average, it takes 3-6 months to find another job after a layoff. So you need to go into financial survival mode. You can do it. It won't last forever. The reason this is so important is because many people go into denial and try to maintain the same level of spending they enjoyed before the layoff, thinking "I'll find another job in no time!". But that thinking causes them to quickly exhaust their savings and start relying on credit cards to maintain their spending. This is terrible financially because credit cards charge exorbitant interest rates (often 25% or more). This debt spiral can quickly dig a very deep hole that is challenging to crawl back out of. So do everything you can to avoid spending on credit.


Re-evaluate your budget and get down to the essentials. Extra spending like eating out, taking trips, buying new clothes, electronics, cars, entertainment subscriptions (i.e. Netflix) etc. can and should be put on hold until you have found employment and are past any kind of probationary period. Essentially, until you can reasonably expect that your income will remain consistent and you can build a budget and plan on it.


There are loads of great options for tracking your finances and creating a budget, but my favorite method is to use an automation tool like www.mint.com to track transactions, and a good ol' spreadsheet for your monthly budget. It doesn't have to be fancy or detailed, just know your numbers and plan accordingly. Spend as little as reasonably possible.


Here's a great resource on building a budget: 10 Budget Categories That Belong in Your Plan


2. Take Inventory of your assets

You're probably going to need cash to bridge the gap between what unemployment [hopefully] pays you and what you need to cover your essential monthly expenses. So take inventory of your assets to determine the best place to draw from to avoid penalties and continue earning interest or returns.


Checking & Savings

This is the first place you should start drawing funds from because you're not giving up much earning potential.


Life Insurance Cash Values

If you have a permanent life insurance policy with cash values, you can take out a loan against those values with no repayment schedule and it just gets deducted from the death benefit. Just call your agent and they'll do it for you.


Note: Make sure to pay it back later to restore the death benefit you're paying for.


Brokerage Accounts

If you have non-retirement accounts, sell off enough investments each month to cover your expenses, starting with the most aggressive investments and working your way down.


401(k), HSA, Or Other Pre-Tax Account

This should be a last resort. In some situations, you can take a hardship withdrawal for medical expenses or to make payments on your principal residence, but in most cases you'll have to pay a 10% early withdrawal penalty on the amount you take out if you're under age 59 1/2, along with income taxes. This is going to set you way back on your retirement savings, but it's still preferable over paying 25% percent interest by using a credit card!


The same method applies; sell off enough investments each month to cover your expenses, starting with the most aggressive investments and working your way down.


3. Get a Part-Time Job

Depending on how much, or if, you'll get unemployment, it may make sense to work a part-time job while you look for a long-term opportunity. This has both financial and mental benefits, since you may be able to earn more at the part-time job than you'd get from unemployment, it'll boost your confidence when applying for the jobs you want (because you already have a job), and it can lead to opportunities from the people you meet.


And don't worry about it hurting your resume. Remember, you control what's on your resume. You can put "temporary employment" as the title of your current job, or not list it at all. Just don't lie and say you're unemployed. And certainly don't hide the income from unemployment and try to draw both. That's obviously illegal.


Here's a nice little article to help you determine whether getting part-time work while you search for a long-term position is the right move for you: Should I Take Part-Time Work While I'm Looking for Employment?


Summary

Getting laid off is terrible, but there are things you can do to make the transition a lot less scary. By doing some financial planning, you'll feel confident in your ability to handle the situation, and you'll be able to keep yourself out of financial trouble.


And before long, you'll be 5 years into a new job and this whole situation will just be an unpleasant memory.