Last Updated: September 1, 2010
If you are among those who have already lost your job, consider reading these articles on the Losing a Job page of the FPA website. If you are still employed, but fearful of losing your job, consider this advice:
Create a Current and Worst-case Scenario Budget
It's important to create a current budget, or what some planners refer to as a cash flow analysis, saving and spending plan, or lifestyle costs. It's just as important to create a worst-case scenario budget should you get laid off. "Examine closely your fixed expenses and variable/discretionary expenses and determine where you can cut back so that you have a plan of action in place," said FPA member, Tara L. Scottino, CFP®, senior vice president with Carter Advisory Services in Dallas.
What's more, consider trimming any and all variable/discretionary expenses and set aside any savings into an emergency fund. For those who have never created a budget, consider starting with a cash journal — a log of all your day-to-day spending. Other experts suggest getting a handle on discretionary/variable expenses by using cash instead of the debit card for daily living expenses.
If you are contributing to education accounts, Scottino suggested that you consider putting those savings on hold while you are strapped for cash, but make certain to start up again once you are employed.
Also, when crafting your worst-case scenario budget remember this: "If you receive unemployment, make certain to either have them withhold taxes or save to pay the taxes yourself," said Scottino. "If you do not do this, you could end up with a large tax bill that you cannot afford to pay and possibly incur penalties."
Evaluate Health Insurance Options
"Make an appointment with someone in your human resources department to determine the cost to continue your health insurance should you lose your job," said Scottino. "Your company is required by law (under COBRA) to make your current coverage available to you for at least 18 months; although, you will be responsible for the entire premium. Again, you may need to cut back in other expense areas to have the funds to pay for your health insurance."
If possible, you might consider switching from your health insurance plan to your spouse's health insurance plan. Another possibility, given the limits of coverage under COBRA, is to consider buying health insurance through a small business owner association.
Stop Using and Pay Down Credit Cards
"Do not use credit cards unless it is completely necessary," said Scottino. "It may seem like a good short-term solution, but then you will be straddled with extra debt once you are working again." For those who have credit card debt already, or who need to use their credit cards for one reason or another, TrueCredit.com, a TransUnion enterprise, offered the following tips in a release: (Other tips can be found at TrueCredit.com)
- Pay on Time: Pay your bills on time, every month, no exceptions. Mark your calendar, make yourself an appointment in Outlook, or set an alarm on your cell phone. Just make sure you don't miss a payment due date, even if you can only pay the minimum amount due.
- Pay in Full: Avoid racking up interest rate charges by paying your credit card balance in full each month. If you can't, you may be overspending and should take a second look at your budget. The more money you spend on credit, the more real money you will owe in the future.
- Limit Yourself: If you must use a credit card, be mindful of your limit; setting one for yourself that's under the card's actual limit will ensure you're not going above your credit utilization ratio (the percentage of your available credit that you've used). Try keeping your balances at or below 35 percent of your limits, since lenders evaluate you, in part, based on how much of your available credit you're using.
Check What Will Happen to Your Employee Benefits
Many workers have disability, life or long-term care insurance through their company. "Some companies will allow you to continue the coverage by paying the premiums yourself, but in most cases, you will likely lose the coverage," Scottino said. That means you will have to replace some of that insurance coverage relatively quickly. You might want to evaluate what it would cost to replace those benefits now and include the cost of those premiums into your existing and your worst-case scenario budget.
Evaluate What to Do with Your Employer-sponsored Retirement Plan
"You may need to decide whether to leave your 401(k) or 403(b) plan at your current company (if allowed) or roll it into an IRA or your new company's plan," said Scottino. "There are many pros and cons that you will need to discuss with your financial planner." Also, as with other company benefits, check with your human resources department about what you can and can't do with your employer-sponsored retirement plan(s), including any defined benefit or cash-balance pension plans.