7 Tips on How to Prepare Financially and Survive Unemployment or Job Loss

Job lossMost of the time, people don’t know in advance that they’re going to lose their job. The news comes as a complete, and unwelcome, surprise.

But what if you did have some advance warning that your job was about to come to an end? Perhaps you’re a contract worker and your responsibilities are almost fulfilled. Maybe your organization has given notice that layoffs are coming. Or perhaps you are ready to voluntarily leave your job to start your own small business or pursue a dream.

I’m actually in this situation right now. My husband and I are in the middle of preparing to become a one-income family, and we’re both nervous and incredibly excited about the change. If you know you are about to get an income reduction or lose your job, some advanced planning will transform a potential calamity into an opportunity.

Here are 7 strategies to prepare for an impending change in your finances:

1. Revisit Your Budget
If you’re facing a job loss, you need to plan and make your household budget immediately. If your current budget was written with two incomes in mind, you will need to go through and analyze your goals now that you know you’ll only have one coming in.

Trim whatever you can out of your spending. Look at your cable TV subscription, your cell phone or home phone plan, your insurance, and any other monthly expenses to see what you can reduce or eliminate. You can usually save money by lowering the quality of your plans. For instance, reduce your cell phone’s monthly minutes, raise your insurance deductibles, or lower your Internet bandwidth for a lower monthly fee. You can even cancel cable altogether and watch TV online instead.

You might also want to consider selling one of your cars on Craigslist, renting out a room in your home, selling your home altogether and downsizing, refinancing your mortgage to take advantage of lower interest rates, or taking your kids out of professional child care to be cared for at home.

2. Pad Your Emergency Fund
Most experts recommend having six months of living expenses socked away in your emergency fund. But in today’s economy, it’s smart to have enough for at least eight months.

You need to be able to cover rent or mortgage payments, groceries, insurance, gas, and even additional unexpected expenses like car repairs.

Starting now, do whatever you can to add money to your emergency fund.

3. Supplement Your Income
Once you’re living on less income, you’ll quickly see that any money you can bring in is helpful.

Start figuring out how you could bring in a bit of extra income working from home. Could you start a small at-home business? Earn money as a freelancer? Learn how to sell stuff on eBay?

Brainstorm your ideas and write them down.

4. Get Out of Debt
Getting out of debt, especially high-interest debt, should be a top priority before you leave or lose your job. Do whatever you can to pay off your current debt, or transfer high-interest debt to a lower-rate card. Consider finding ways to supplement your income now, while you are still employed, and earmark those extra funds to pay down your debt.

5. Practice
If you have enough advance notice, start attempting to live off your reduced income right away. My husband and I did this last year, and it ended up working out well. We lived off what I made, and saved everything he did.

Taking the time to practice before “the real show” can make you feel more comfortable when the time comes, and allows you to work out any kinks or cash flow problems you might not have anticipated.

6. Don’t Forget About Retirement
Do you have a individual 401k retirement plan with your employer? If so, you need to spend some time thinking about what you want to do with it. Many organizations will let you leave it where it is if you have a minimum amount in your account already (usually $5,000 or more). In other cases, you may have to transfer your funds.

Most experts recommend an IRA rollover for retirement. Talk to a financial planner in advance to figure out the best approach for you.

7. Start Networking
Everyone’s situation is going to be different. Some of you will want to try and find a new job as soon as possible. Others will decide to start a business, or even take some time off to pursue a personal dream, like traveling or volunteer work.

Whatever your plans are, make sure to put your network of friends and colleagues to use, especially when you start looking for a new job. Use Facebook and your LinkedIn profile for business networking; they can be invaluable sources for recruiting and finding new opportunities.

Final Word
Losing or leaving your job can be an incredibly nerve-wracking experience, even if you have done everything you can to prepare. But keep in mind that your experience is up to you. That is, you can look at the situation as a catastrophe, or as an open door.

I’m choosing to see our own situation as an open door. Yes, I’m a bit nervous about being a one-income family. But I’m also really excited about the opportunities that are going to open up once this happens.

What about you? Are you facing a voluntary or involuntary job loss? Have you already gone through this? Please share any tips or advice you may have!

(photo credit: hilcampbell)

  • http://blog.checkadvantage.com/ KaseyS

    Heather – Great advice.

    I wish I’d read this long before I found myself unemployed in early 2009!

    My emergency fund was equivalent to a little more than one paycheck. And my debt situation at the time – not good.

    But you’re certainly right on about looking at the situation as an open door – no matter what.

    • Heather Levin

      Kasey, it’s definitely all about attitude. What you see is what you get. So looking at the situation as an opportunity, I believe, means that’s exactly what you’ll get out of it. :)

      Thanks for reading!

  • Bob Smith

    I am so sick of all this “you better have it socked away” stuff. In the real world people live paycheck to paycheck. My last paycheck WAS my savings. I am out of a job and here is my plan which seems to be working.

    1) Pay minimum payments on credit cards. last time I just didnt pay them and wrecked my credit. Plus you might need your miniscule available credit to eat later on or to rent a motel.
    2) Defer/Forebear student loans. Most will do something for you.
    3) My wife works (otherwise we would be homeless)
    4) Go month to month on the lease. It costs more but it frees you up to become homeless or live with family without wrecking rental history
    5) Pay your rent
    6) Slide EVERYTHING else to 29 days late. Banks hate it and will harrass you but you can slide a month behind on almost anything. It works with personal loans (car loans I have not tried this with). It works with utilities too. According to the credit bureau, late is 30 days late. Therefore you might end up paying more money and get slapped with fees but your credit will be intact
    7) DO TAKE UNEMPLOYMENT without guilt and dont do anything to jeopardize it.
    8) Do not fall for the “any job is better than no job lie”.
    9) Looking for work is your new full time job. Friends, family, ex co workers, everyone is all of a sudden going to call, email, and text you to see what you are up to. Some is out of real concern. Mostly its making sure you are doing what you are supposed to. Dont take there calls during business hours. Your job is finding a job. Focus on a job that will replace the one you lost. You had that one, you can replace it. I have been out of work for 2.5 weeks and have had 8 interviews and should be employed by the end of the month.

    10) DO NOT BE THE UNEMPLOYED FOR YEARS PERSON. If you make getting a job your full time job and you AIM HIGH you will get a job quick. You can always aim LOWER (lower meaning higher than you make on unemployment) later

    11) if you dont get an interview within three days of sending out a bunch of resumes, throw away your resume and rewrite it. Soemthing is wrong

    • woeisme

      This is very good advice. Thanks for keeping it real.

  • Dr. Jose Martinez

    Many 45+ like myself found ourselves given no warning when Raytheon laid us off without warning and given an hour to clear our desks after decades of honorable work and being rated in the top 5-10% of their employees. Many were within weeks or months of retirement from the company and the Federal EEO was a joke. Some like myself could teach college courses part-time because of our advanced degrees but most are still looking after nearly four (4) years. In the meantime, foreign engineers are taking our jobs that have little to no experience since the administration gives our visa’s like candy if you are a foreigner.