At some point, you may find yourself in an emotional and financial situation where none of us want to find ourselves: A sudden job loss leaves your family with only one source of income—or none. While going through a layoff can be stressful and unsettling, there are sound financial steps you can take to protect your family’s finances and budget.
The most important thing? Snapping out of shock and denial, which are natural and common emotions, and immediately making a plan. “You need to face the music early on, especially in this environment where we don’t know what the job outlook is,” says Kristin O’Keeffe Merrick, a financial advisor at O’Keeffe Financial Partners in Fairfield, NJ. “Maybe you have a severance package, but do you know how long it’s going to last? A year? Three months? Can you make it last longer by getting your budget down as much as possible?”
Here are the steps to secure your family’s future after a job loss.
Step 1. Exit with Everything That’s Entitled to You
Depending on the length of your employment at your former company and the details of your contract, you may be entitled to vested 401(k) contributions from your employer, vested stock options, payouts for unused vacation time or a severance package. If you had health insurance through your employer, you may also be able to continue your policy at your own expense. Do a deep dive into all of the paperwork the HR team provides, review your signing papers and seek expert advice from a lawyer if anything is missing or unclear. It’s time and money well spent to ensure you’re walking away with everything you’re entitled to.
Step 2. Get a Grasp on Your Cash Flow and Assets
To determine what you can spend in the upcoming months, you need to tally the cash, savings and assets you have available. What money will you have coming in from your severance payment, unemployment insurance or other income streams? Do you have an emergency fund or other savings? What investments and lines of credit do you have available? Creating a complete and accurate picture of your available funds is essential before you rebuild your budget.
If you have been lax on tracking your cash flow, now is the time to seize control. If you lose your job, your problems will be compounded if you also don’t know where your money is going, says Emlen Miles-Mattingly, a financial advisor in Madera, CA, and the creator of the Minority Money podcast. To get a grasp of your spending, track it and check your accounts daily, Miles-Mattingly advises. “Any time there’s a change, you need to understand what you need to survive,” he says.
Step 3. Focus on Income
A smart way to avoid accruing more debt is to keep income flowing in, so your budget stays in the black. Perhaps you can cut your spending to be able to live on what you bring in from unemployment, government assistance or other income streams, such as part-time jobs, freelancing, temp work or a side business you’ve been developing.
With the influx of people needing unemployment insurance, just making sure you’re getting your benefits can be a job in itself. “Being on top of unemployment status—staying on top of that even if it means being on the phone for six hours a day—that is crucial,” Merrick says.
Step 4. Rebuild Your Budget
With a complete understanding of your cash flow and what income you can expect over the coming months, you can build a budget that keeps you afloat without tapping into your savings.
The reality is that it is time to make tough cuts. Even if you don’t consider your spending to be lavish, many of us are not as careful with our money as we could be. “We structure our lives around convenience,” Merrick says, adding that convenience carries cost. “If you’re not working, you don’t need convenience. You need to save money,” she says. Say goodbye to anything that isn’t absolutely essential, such as grocery deliveries, streaming services, gym memberships and clothing purchases. “You’re going to have to sacrifice things you don’t need to be paying for,” Merrick says.
When it comes to debt, reach out to your lenders to see if you can work out deferred or reduced payments. “I highly recommend contacting your lenders,” Miles-Mattingly says. “If you contact them, they’re going to work with you; they might give you some time off from making payments.” For example, certain lenders might allow you to forgo car payments for a few months and add those payments to the end of your loan, Miles-Mattingly notes. This might also be a time to consider debt consolidation, Merrick says. Overall, consider each debt you owe individually and do some homework to see how you can reduce payments until your income recovers.
Step 5. Figure Out How Long Your Savings Can Last
Ideally, you have emergency savings for just this reason: an unexpected loss of income. “You need to be very thoughtful about how long your emergency savings are going to last you, inclusive of what income you’ll be receiving,” Merrick says. “It’s understanding what’s going out versus what’s coming in, and how much savings you’ll need to live on.”
If your budget doesn’t align with your savings, go back to the drawing board and make even deeper cuts to spending. And keep in mind that accruing more debt should be avoided. “Not adding to your debt is the most important part of this,” Merrick says. “Your mortgage is fine, but making sure that you are not accumulating more debt is of the utmost importance.”
Step 6. Reassess Financial Goals
If you’re a savvy saver, retirement may be a fixed star on your financial horizon, but you may need to give yourself a break right now. The same goes for other financial goals. If you do need to cut back on your savings, that doesn’t mean you’re off track for good. “There’s a thing called a pause,” Miles-Mattingly points out. “A temporary pause doesn’t mean we’re never going to put money back into it. But focus on getting back the job, and then doing the next things.”
Experts agree that you should avoid dipping into retirement savings as much as possible, for the sake of your future. Don’t lose the ground you’ve gained by being a good saver and don’t get stuck paying fees and penalties. “Touching your retirement savings should be a last resort,” Merrick says. Sell other investments first, if you must.
Step 7. Communicate With Your Family
Many parents dread talking with their kids about money uncertainties. Now is the time to get the whole family working together to keep your finances secure. You can soften the situation for your kids without hiding it from them, says Merrick. “Tell the kids that the family needs to be very thoughtful about cutting back on certain things and that there are things you’re not going to do right now. Kids can understand that,” she says.
For a culture that still sees money as a taboo topic, even in families, it’s a good chance to turn this into a teachable moment. “It’s an important message to teach kids,” Merrick says. “Money isn’t a permanent thing; jobs aren’t a permanent thing.”
Just as important, having a reset with your partner is essential. “It’s a come to Jesus moment, where you’re getting real about spending,” Miles-Mattingly says. “Have that open dialogue and be really honest with each other.” Being a strong financial team, even when your income is reduced, is the best way to take care of your loved ones in the present moment without sacrificing your long-term goals.
Julie Anne Russell is a Brooklyn-based freelance journalist. She writes on personal finance, small business, travel and more.
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