Finance

5 ways to pick yourself up and protect your finances after a job loss

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Tens of thousands of job cuts have been announced this week as a result of the ongoing coronavirus pandemic. With 28,000 employees expected to be laid off at Disney and 7,000 to 9,000 jobs cut at Royal Dutch Shell by the end of 2022, job losses are mounting among energy, entertainment, hospitality companies and many other sectors. 

The airline industry has also been among the hardest hit, and big job cut announcements could come as soon as Thursday. Barring additional federal aid, U.S. airlines are on the verge of shedding more than 30,000 jobs.

Many of those jobs may not come back.

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“The outlook for further jobs creation, or restoration, is fairly restrained,” said Mark Hamrick, senior economic analyst at Bankrate. “The unemployment rate is expected to be elevated in the high single digits through the end of the year.” 

If you’ve been laid off during the Covid-19 crisis, rethinking how to pay your bills and replenish your greatest financial asset — your income — are likely among your top priorities. The next moves you make, experts say, should be realistic and strategic to help you manage through the uncertainty.

Here are five ways to pick yourself up and protect your finances after a job loss: 

1. Apply for unemployment benefits and other relief programs

The state you live in and the amount of money you made over the past year will determine how much you get in unemployment benefits.

“It’s not designed to replace your entire paycheck but can certainly help,” said certified financial planner Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation. “There will likely be a lag time until you receive your first check, so it’s best to file immediately.”

CareerOneStop.org is a good resource for unemployment updates and has links to your state’s unemployment insurance website.

Also, reach out to your lenders and creditors to find out what kind of Covid-19 relief programs they are offering. You can delay your monthly payments on federally-insured mortgages for up to one year and stop federal student loan payments — and pay no interest — until Jan. 1, 2021. Many auto lenders and credit card companies will let you extend or defer payments for one month or more without incurring late fees. But you have to ask.

“Be clear with lenders and creditors about whether you will continue to accrue interest during deferment,” said Bruce McClary of the National Foundation for Credit Counseling. “If you’re in a position to pay, you should.

“If not, then focus on paying your most vital expenses, like food and health care.” 

2. Make sure you have health insurance 

If you were laid off, you’ve likely lost your health insurance, too. You can still keep your employer-sponsored coverage through a federal program called COBRA. COBRA lets you keep that coverage for up to 18 months. Also, your spouse and dependents in some cases can stay covered for up to three years.

The catch is that you have to pay for COBRA yourself, which can cost considerably more than you were paying as an employee.

“Contact the benefits department at your previous employer and get the facts regarding the cost of COBRA and the process for making the switch,” said Schwab-Pomerantz. “Then, do some comparison-shopping.”

You may be able to find a lower-cost high-deductible health insurance policy through your state or the federal Affordable Care Act exchange at healthcare.gov.

If your spouse or partner has a workplace health plan, you may consider switching to that insurance. This year, due to the coronavirus pandemic, the IRS will permit employers to let employees drop their health insurance if they have another option, even if it is outside of the timeframe of the usual fall enrollment period.

Workers can also add family members to their current plan or switch to a different health insurance plan. However, employees can only take advantage of these options if their employer allows it.

Bottom line: “Don’t be tempted to go without insurance,” Schwab-Pomerantz said. “You don’t want an illness or injury to completely ruin your financial planning.”

3. Compile your ‘financial report card’

CFP Roger Ma, founder of Lifelaidout LLC in New York and author of the new book “Work Your Money, Not Your Life,” says compiling your “financial report card” entails figuring out your net worth, monthly living expenses and credit score, and he offers free money templates on his book website to help you get started. 

“With a reduction in income, it’s more important than ever to get a handle on your expenses,” Schwab-Pomerantz said. “You can’t determine how much you need to survive until you know how much you have, what you owe and how much you spend.” 

Group your living expenses into two buckets — “need to have” and “nice to have” — Ma said, and “temporarily stop as many of the ‘nice to have’ expenses as possible.” You may be able to lower some of those “need to have” expenses, too.

Look at the value of your cash and taxable investments and divide that by your monthly living expenses. That’s your runway.
Roger Ma
founder of Lifelaidout LLC

“Focus particularly on essentials — your mortgage, utilities, phone, Internet, groceries, health insurance premiums, car payments — anything you need to cover to stay afloat and move forward,” Schwab-Pomerantz said. You may be able to negotiate your rent and internet and phone plans, downgrade your  cable plan and cancel some subscriptions. 

Your financial report card also should include a snapshot of your savings. Continue to save a little, if you can, said CFP Lee Baker of Atlanta-based Apex Financial Services.

“If you find yourself in a situation to take some of these forbearances (delaying mortgage payments, etc.) but never got around to creating that ‘rainy day’ fund, skip a payment and use those dollars for savings or to eliminate other (higher-interest) debt,” said Baker, who is also a member of the CNBC Financial Advisors Council. 

4. Avoid raiding your 401(k) or workplace retirement account

If you’re laid off, you can still keep your employer-sponsored 401(k) accounts, although you can’t contribute to them. Ideally, this is long-term savings, not for emergencies. Don’t rush your retirement nest egg. Dip into taxable accounts first.

Figure out your “financial runway,” Ma said. To do so, “look at the value of your cash and taxable investments and divide that by your monthly living expenses. That’s your runway — how many months you’d be able to fund your life without a salary.” 

Yet many unemployed workers have no runway. They’re stuck on the tarmac. Raiding that 401(k) plan is their last or only resort.

“If you find yourself in a situation where you need to tap your retirement savings, this is a fortunate time to do it with a waiver of a 10% penalty and three years to pay taxes on it,” Baker said. 

Under the CARES Act, you can take a withdrawal of up to $ 100,000 from your retirement savings, including 401(k) plans or individual retirement accounts, without the typical penalty. These “coronavirus-related distributions” are only available this year. You can pay taxes on the money you take out over a period of three years or pay no tax if you pay it all back.

Here’s the catch: Your employer has to have implemented this provision — and not all employers have done so. Don’t take a 401(k) loan, although it may be tempting. With a permanent loss, your entire loan balance generally will be due within 60 days. It may be impossible to make that deadline without your regular income. 

Again, accessing your 401(k) money should be done only in a dire emergency. “While present circumstances may be difficult, I’d counsel anyone to avoid jeopardizing their future retirement unless absolutely necessary,” Schwab-Pomerantz said. “You may not appreciate the full consequences until much later.”  

5. Evaluate your job prospects

Now is the time to see what other opportunities may interest you — and not necessarily in your previous industry.

“Take a step back from the daily rush to think about what you want from your career and life,” said Ma at Lifelaidout LLC.

Envision your ideal job. Brainstorm careers that may match your skills, interests and compensation requirements. Keep your eyes open, hone your skills and update your resume. 

“I would suggest to people to actively look right away,” said Jack Kelly, founder and CEO of The Compliance Search Group, an executive search firm. “Your new job right now is finding a job.”

You don’t have time to mourn the loss. Focus on your mental, emotional, physical health and well-being.
Jack Kelly
CEO of The Compliance Search Group

Cultivate your network and come up with a list of companies that you’d want to work with and figure out how you can get your resume in front of a person at that company.

“Get on LinkedIn,” said Kelly, who recently launched WeCruitr, a free social media networking site designed to help people find jobs. “Get in front of your network right away.

“Join online meetups,” he added. “You want to get out there.” 

Rewrite your resume so that it is tailored to the specific job you’re seeking with keywords that match-up with the skills the employer wants. If you believe there are skills that you’re missing, take an online course or find a part-time job to gain skills and replenish your income.

To find a job you can do from home, check out freelance online platforms such as Fiverr, Upwork and People Per Hour, which will allow you to become a freelancer based on the skills you have. Staffing and education companies are among the firms offering the most remote freelance jobs right now, according to FlexJobs.com. Consider online tutoring or developing your own course. 

Keeping an upbeat attitude is also important in this crisis, especially in your job search. “You don’t have time to mourn the [job] loss,” Kelly said. “Focus on your mental, emotional, physical health and well-being.

“You have to find ways to stay positive, stay focused.”   

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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