No matter how well the U.S. economy performs, downsizing, layoffs and restructuring are a part of 21st-century working life.
Naturally, a job loss, whether sudden or anticipated, can be a major blow to your finances. USAA financial professionals suggest considering these tips to stay afloat as you seek new employment:
- Decide how to collect your final pay. If you're laid off, your employer may provide a severance package. If given a choice of a lump sum or a stream of payments, weigh the advantages of each. A series of payouts can prolong benefits like health care and life insurance, and it also might help you budget better. If your employer is having financial problems and possibly facing bankruptcy or closure, a lump sum might be a safer bet. Additionally, weigh the tax consequences of each option.
- File for unemployment benefits. Many who find themselves out of a job qualify for unemployment benefits. Because programs vary by state, check with your state's labor department for the details.
- Reduce your spending. Preserve your cash while you're out of work by making some lifestyle changes. Put off big-ticket purchases and cut discretionary expenses such as eating out, entertainment and cable television. Consider carpooling, couponing and adjusting your thermostat to stretch your dollars. If need be, adjust your fixed necessities. Selling your car or moving to less expensive housing could save significant cash.
- Avoid cleaning your financial slate. While you may be tempted to use your severance or other assets to pay off debt, making only the minimum payment may be a better option. You might need to stretch your cash in case a new job isn't right around the corner.
- Review health insurance options. Most companies and the military will continue to provide health care coverage for a time after an employee's departure. But look for an alternative quickly, since medical care can be pricey.
- Protect your retirement. If you have a 401(k) or other employer retirement plan, avoid the temptation to cash out when you leave. In addition to jeopardizing your financial security when you retire, you'll likely face income taxes and penalties. Instead, roll the money over to an IRA or leave it in the employer plan. Only crack open your nest egg as a last resort.