Getting laid off from a job can be one of the most difficult and stressful things an individual might have to endure in his or her life. Not only does a layoff often cause financial strain and uncertainty, but it can also lead to self-doubt and even depression.
After getting the news of a layoff, it’s not uncommon for people to go though a period of grief not unlike losing a loved one. Many grief counseling experts say this is perfectly normal, but that after a short period of time, it’s important to move forward with a new career and financial plan.
Implementing a New Game Plan
If you are facing a layoff — or if you ever get laid off in the future — here are 5 steps to consider taking as you implement your post-layoff game plan.
- Find out about severance pay and any other benefits you may be entitled to. If you receive severance pay for a period of weeks or even months after a layoff, this can help cushion the financial blow of being laid off. You might also be eligible to receive pay for unused vacation days or paid time off, so be sure to ask about this as well.
- Examine your health insurance coverage options. You may be eligible to receive a continuation of your former employer’s group health insurance plan for up to 18 months through the Consolidated Omnibus Budget Reconciliation Act of 1985, more commonly known as COBRA.
You generally will have to pay the full cost of premiums plus an administrative fee in some instances. However, COBRA insurance could provide coverage for you and your family while you research other options (such as coverage under the Affordable Care Act) or until you find another job that offers health insurance.
- File for unemployment benefits. Some people delay or avoid this step out of pride, but remember that these benefits exist specifically to help individuals who have been laid off. And they are generally paid for by your former employer, so there’s no reason not to file for them.
Depending on your state, you may be able to file online or over the phone, or you might have to visit your local unemployment office. After your initial filing, you’ll need to submit paperwork on a weekly basis for as long as you’re unemployed to continue receiving benefits. The amount of benefit you receive will be based on your employment history and past earnings.
- Adjust your budget and manage your cash flow. Budgeting and cash flow management will become critical during the weeks and months after your layoff. Start by determining how much income you may receive post-layoff from severance pay, unemployment benefits and other sources, including perhaps a spouse’s employment income.
Then adjust your expenditures to reflect your new level of income. Start by looking for discretionary expenses that you can reduce or eliminate. Eating out and entertainment (like going to the movies and concerts) are two of the first places you should probably look. Health club and country club memberships, vacations and premium cable TV packages are other discretionary expenses to consider cutting.
- Carefully consider dipping into savings. If you are unable to balance your new budget by cutting expenses, you may need to dip into your savings to cover shortfalls. This is the time to tap your emergency savings fund if you have one, since withdrawals from liquid savings and money market accounts usually aren’t assessed early withdrawal penalties.
Tapping your retirement accounts, like your IRA or 401(k), should generally be considered a last resort due to the penalties and taxes you might have to pay on these withdrawals. Doing so could also negatively impact your long-term retirement plans — even if you resume contributions in the future, you will have missed out on potential earnings from money you withdrew from the accounts.
A Layoff Silver Lining?
While it probably won’t seem like it at the time, a layoff can present opportunities for a positive career change. For some people, this might even include self-employment or starting a new business. Many successful new startups have been created after a budding entrepreneur got laid off and decided to strike out on his or her own.
So before you look for another job, think about whether getting laid off might actually open the door for you to pursue entrepreneurial ambitions you wouldn’t otherwise. If so, there’s a possibility that one day you’ll view the layoff in a very different light than you do right now.
Please contact us if you have more questions about steps to take about a layoff.