Even in good economic times, no one is 100 percent safe from the threat of a pink slip. Unemployment is well below its Great Recession peak, but there’s a dark cloud on the horizon: U.S. layoffs are on the rise. In the last half of 2015, we saw the largest increase in big-company layoffs since 2009. 2016 began with January job cuts that soared twofold from a year earlier. And some economists say we’re overdue for a recession.
Your first instinct after getting laid off may be to throw yourself into the job search, or perhaps take some time for yourself and hit the beach. But before you update your resume or pack your bags, you need to get straight with your finances. A layoff exposes your financial picture, and you may not like what you see.
Here’s what to do to best protect your finances and credit score if you find yourself suddenly out of a job.
Don’t Burn Bridges — Especially if There Are Benefits
You’re likely going to feel a lot of emotions all at once after getting laid off. Denial, shock, anger, embarrassment, and anxiety are all common responses to job loss, psychologists say.
But while getting emotional is completely understandable, step away from Instagram, Facebook, Twitter, and your other social media accounts if you’re feeling angry. If you do unleash your feelings publicly, you’ll still be out of a job — only now you may have given future employers a reason not to hire you. No matter how good it might seem to vent, know that the feeling will pass.
Avoiding burning bridges is key for your future, but you also might be up for some unexpected benefits if you keep your relationships intact. Your employer may ask you to stay on the job for a limited time — and offer benefits such as job-search counseling. Say yes to all of that and ask for more. If you’re really lucky, they may extend medical benefits. If not, then ask for your last day to be near the beginning of the month, since group coverage usually extends through the month that you leave, says NerdWallet financial advisor Dana Twight: “A last day at work of May 1 is better than April 30,” she says.
Assess Your Cash Situation
Your new reality means it’s time to look at your bank account. You’ve probably heard the advice to build an emergency fund of three to six months of living expenses. Now is when that reserve will help — or when you’ll find yourself wishing you had saved.
If you don’t have an emergency fund, then your severance, and any additional time you’ve negotiated to stay with your former employer, tells you how much time you have before you need to find a new job. Anything else you can do to extend your time to find not just any job, but the right job, is crucial. That means cutting expenses and creating a budget if you don’t already have one and applying for unemployment benefits.
Make a mental note to start saving at your next job. Every payday, put at least 10 percent of your earnings into a savings account. You can automate this through your bank or employer. This is money you don’t touch — the kernel that grows into your emergency account.
Protect Your Credit Score
Losing your job can result in a sinking credit score if you miss bill payments or take on more credit card debt. Making on-time monthly payments is crucial to protecting your credit score and qualifying for bank loans or other credit, but not all bills affect your credit equally. Here’s a breakdown in order of importance to your credit score:
- Rent or mortgage payment; secured debt such as car loans; student loans
- Credit card debt
- Utility costs
- Other monthly household expenses
After you lose your job, call your creditors and let them know about your situation. They may allow you to suspend a payment or two on your mortgage, car loan, or student loan, or perhaps temporarily lower your monthly payments.
If needed, make only the minimum monthly payments on your credit cards. Also consider transferring your balance from a card with a high interest rate to one with a lower rate. Resist the urge to continue spending on credit cards; it will dig you further into a hole.
Next, examine your monthly utility bills, and take measures to cut them down where possible.
One Expense to Consider Adding
If you’ve just lost your job, you may want to consider taking out a life insurance policy. Why? A layoff often means the loss of a company-paid life insurance policy, so this is a good time to get one that’s not tied to your employer.
Consider getting coverage if you’re in your thirties or younger (the monthly payments are much lower), and absolutely do it if you are married, have kids, or have any other dependents. It’s cheaper the earlier you sign up, and let’s face it: The odds of your eventual death are 100 percent. Spending $20 a month to make sure your loved ones are covered in case you’re gone is a pretty smart move. Don’t let your layoff leave your family unprotected.