5 financial moves if you lose your job

Amy Fontinelle

By Amy Fontinelle
Amy Fontinelle is a personal finance writer focusing on budgeting, credit cards, mortgages, real estate, investing, and other topics.
Posted on Jul 8, 2019

What would you do if you lost your job tomorrow? What can you do if you’ve already been shown the door? Only one in four families are prepared for a financial emergency, according to MassMutual’s 2018 State of the American Family study.

There’s no question: It’s scary not knowing where your next paycheck will come from. How can you stabilize your finances until then? We suggest these five moves:

1. Apply for unemployment benefits.

2. Start your job search ASAP.

3. Take stock of your assets.

4. Secure health and life insurance.

5. Cut nonessential spending.

Here’s a more detailed look at how to take charge and make the best of a bad situation.

1. Apply for unemployment benefits.

“The first thing one should do when one loses a job is to file for unemployment,” said David R. Silversmith, a CPA, CFP® professional, and senior tax manager at PKF O'Connor Davies in New York, New York. “This is easy and can be done online. It will provide you with some income while you look for another job.”

The time it will take to start receiving benefits varies by state. New York’s unemployment department, for example, normally requires applicants to fulfill a waiting period equal to a full week of unemployment benefits before they can get paid, though that requirement was temporarily lifted during the pandemic. Apply as soon as you’re eligible, because systems can get overwhelmed when unemployment is high, and you may face delays in receiving benefits.

Use your state’s online tools to calculate your estimated benefits. Weekly benefits are capped at a sum that may be much lower than your former paycheck. In California, for example, the weekly maximum is $450, or about $1,800 per month.

State unemployment benefits are taxable income. You may choose to have tax withheld or make quarterly estimated tax payments.

2. Start your job search ASAP.

Is there any more important financial move when losing your job than trying to minimize the time you’re unemployed? Thankfully, online job sites and their use by recruiters makes job searching easier these days than in the past.

“The next thing to do is make sure your LinkedIn profile is up to date,” Silversmith said. After that, apply the specific settings that will make recruiters and human resources professionals aware that you are looking for a job.

This setting is in your profile, which also lets you add a note to recruiters and set the job titles and locations you’re interested in. A premium subscription allows you to directly message recruiters and job posters, apply to jobs as a featured applicant, and see how you compare with other applicants based on your profile. (Related: Questions to ask before accepting a job offer)

Don’t limit your search to a single platform. Other top job-search and recruiting sites include, but aren’t limited to, Indeed, CareerBuilder, ZipRecruiter, LinkUp, and SimplyHired. You can also find job sites that cater to certain professions, such as Stack Overflow for software developers and JournalismJobs for media professionals.

Avail yourself of your existing networks, too: there’s no substitute for connecting the old-fashioned way. Letting your contacts know that you’re job hunting is a great way to uncover opportunities and get your foot in the door. Tell them about your skills and the position you’re seeking.

3. Take stock of your assets.

Once you’ve applied for unemployment and started your job search, it’s time to see where you stand financially so you can figure out how you’ll pay the bills and how much time you have to find a new job. With this information, you’ll know whether to take the first job that’s offered to you or hold out for the best fit.

“Immediately talk to the folks in the HR department and ask whether severance payments will be forthcoming and the amount you'll receive if you qualify,” said Timothy Wiedman, retired associate professor of management and human resources at Doane University in Crete, Nebraska. “Also ask about payment for unused vacation days and possibly even payment for unused sick days,” he added.

Any payments from your former employer may reduce or eliminate state unemployment benefits until those payments run out. But state benefits rarely last for more than 26 weeks.

Then, Weidman recommends that you check the current balances in your savings, checking, and money market accounts and the value of any CDs or other non-retirement investments that could be converted into cash fairly quickly should the need arise. “Totaling these items will provide your current liquid cash position, and that will be useful in planning your new budget,” he said.

Related: Borrowing from your 401(k): The risks and Cash value in life insurance

4. Secure health and life insurance.

If you’re one of the millions of workers who receive group health and life insurance through work, you’ll likely lose those benefits when you lose your job. Replacing them immediately is essential.

The first place to look is a spouse’s or partner’s plan. Can you enroll in their employer’s group plan?

Of course, for many households, when one person loses insurance, everyone loses insurance. Even if you’re coupled or married, your partner might be on your plan and not have access to workplace insurance. If you have children, losing your job could mean losing their coverage, too.

The next place to look is staying on your former employer’s plan through COBRA. The drawback is that the premiums often become much more expensive at a time when you have less money to pay for them. The average cost of employer-sponsored family health coverage in 2020 was $21,342 according to the Kaiser Family Foundation. Under COBRA, you must foot that entire bill because your employer will no longer contribute.

Another option is to buy individual coverage. With a qualifying life event, which includes losing your job, you can enroll through the health insurance marketplace outside of open enrollment. Premium tax credits can lower the cost if your annual income is low enough to qualify.

As for life insurance, you may be allowed to convert your employer’s plan to an individual one. If not, you may want to purchase a plan on your own if anyone depends on your income. While some health conditions can make premiums more expensive or prevent you from qualifying for certain policies, your options may be better than you think. Don’t assume anything without talking with a financial professional.

Calculator: How much life insurance do I need?

5. Cut nonessential spending.

You don’t need anyone to tell you that certain expenses have to go when your income shrinks. But what are the best things to cut and how might you prioritize your bills?

Housing is essential, of course. It’s best to keep making these payments in full and on time to keep your credit score intact and avoid late charges. Also essential are electricity, natural gas, and water, though you may be able to trim your usage.

Transportation to job interviews is key, too, but you might cut out nonessential trips. Pay your auto insurance premiums so you don’t lose coverage, but ask if you could change deductibles or other policy features to save cash without making unreasonable compromises.

Pricey cable television packages and cellphone plans are obvious candidates for cutting. Keep visual entertainment in your life with an inexpensive streaming service, and venturing beyond the big-name providers can mean big cellphone savings.

Go through your credit card and bank statements for the last three months. See what you normally buy that you can cut out for a while and what you’ve purchased but not used that you might return or resell. Also, are there any other subscriptions you could drop? Maybe meal services, monthly subscription boxes, gym memberships, newspapers, magazines, and the like can go for now.

Paying at least the minimum on your credit cards is also important to keep your credit score up and avoid late fees and escalating interest rates. But if you have student loans, look into deferment or forbearance. You may accrue extra interest by choosing either option but gain temporary relief from monthly payments while you look for work.

Learn more: Seeking relief when student loans are unaffordable

Conclusion

Losing a job can feel awful. It throws off your routine, casts uncertainty over how you’ll pay the bills, and may fill you with self-doubt. Taking proactive steps to minimize the financial challenges you’ll face can help give you a sense of purpose and a bit more stability.

Discover more from MassMutual...

What to do when facing a financial emergency

5 reasons to tap your emergency fund

Is group life insurance enough?

This article was originally published in July 2019. It has been updated.

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.