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Fired! How to Get Your Finances in Order When you Lose Your Job

Imagine the unimaginable: It’s Friday and you head to work in a good mood, primed for the weekend ahead. You settle at your desk, check your email, and see that your boss wants to see you in his office. You go in, he closes the door, and you notice the look on his face. “This isn’t good,” you think.

“I’m so sorry,” he begins to say.

But you don’t even hear what comes next as the adrenaline rushes into your bloodstream. Your head spins. Your stomach turns. You get angry. Maybe you start to cry. A million questions race through your mind: “Why me?” “How will I find another job?” And then: “How will I pay my bills next month?”

There are few life events that can have as dramatic and immediate financial impact as losing your job. Without generous severance pay (rare unless you’ve worked somewhere a long time), one minute you are making ends meet, the next you are out of work with maybe a few weeks vacation pay and whatever you’ve managed to save.

This is the moment that you either say: “Man, I wish I had an emergency fund” or “Thank God I have an emergency fund!”

Either way, the next few months will be difficult.

I’ll be honest, I’ve been fortunate in that I’ve never been laid off. (I’ve seen the writing on the wall and quit jobs, but I always had another job lined up). I have known plenty of people who have lost jobs — some of them many, many times (a risk of always working at startups). So I’ve picked up a thing or two about what to do (and what not to do) after you’ve been laid off.

Immediately shed unnecessary expenses

It’s time to say goodbye to digital cable, your gym membership, and any other monthly expenses you don’t absolutely need. Obviously, you’ll want to put savings on hold, as well as debt payments above and beyond the minimum required. (We’ll talk about what to do about debts when you’re unemployed in a future post, but the bottom line is: You want to avoid using new credit during this time, but it may mean suspending any aggressive debt pay down plans.)

Don’t despair. All of these cuts are temporary to allow your limited money to go further until you secure an income again. Here’s a list to get you started:

  • Cable
  • Netflix
  • Magazines or digital content subscriptions
  • Gym membership
  • Beer/wine/cigar/cheese, etc.-of-the month club
  • Haircuts, salon or spa services
  • Public transit monthly passes (if you’re not commuting anymore)
  • Dining out (an easy way to tighten the belt during lean times)

File for unemployment

If you were laid off or fired for you job, you may be eligible for unemployment compensation. The requirements, amounts, and terms of unemployment are set by your state, so you’ll want to get in touch with your state’s unemployment office to determine your eligibility. Keep in mind that even if you’re eligible, it may take many weeks to receive any benefits, so plan accordingly.

Finally, keep two things in mind about unemployment:

  • You will owe taxes on the income, and it is not withheld. If you can afford it, set aside 30 percent or so in savings. If you need every penny, just remember that you may have to pay some of it back when you file your tax return.
  • You must report any wages you earn while on unemployment. Sometimes, it may be better to focus your attention on landing a new full-time job rather than working part-time or temporary gigs that will reduce unemployment but may not lead to anything permanent.

Figure out how long your replacement income will last

Once you know what, if any, unemployment benefits you will receive, you can determine how long your money will last. Tally up your monthly expenses (hopefully slightly less than when you were working if you can make a few sacrifices). Subtract any unemployment income. Finally, divide your savings by the amount of your new monthly expenses.

For example, if you have $2,000 in monthly expenses, and you will get $300 a week in unemployment benefits for up to six months, you’ll need $700 a month in savings to make ends meet for six months and the full $2,000 after that. Assuming you have $10,000 in savings, you have just under nine months to find work before money runs out.

If you’re prepared, this should bring some relief. Nine months isn’t forever, but it gives you some time to make a plan. If you’re unprepared … well, it’s time to start hustling.

Look for work – strategically

If you don’t have unemployment income or savings to draw on, it’s time to find work, stat. Lose the ego. Forget about how it might look on your resume. You need cashflow, and you needed it yesterday. Sling coffee or burgers, babysit for your sister’s annoying kids, do an application blitz at the mall.

Whatever. It. Takes.

There’s nothing shameful about working to pay the bills.

If, on the other hand, you have the money to survive for a few months without working, you can be more strategic. In this case, I would not jump at the first job you can get if it doesn’t fit your expectations. But as the money dwindles, you’ll have to get less picky.

Take your newfound unemployment to de-stress a bit (after all, how many chances in life do we get to take weeks off at a time!) Then, think about your dream job. What is it? Who do you know in that industry? Can you meet them?

Offer to take people out to lunch who work in the industry just to get to know them – don’t beg for a job, or even bring it up at the first meeting! With time on your side, these kind of connections could lead to a much more fulfilling new job than a resume blitz.

Or – is your dream to work for yourself? Can you take steps in the next few months to try that out? Lots of entrepreneurs get started after being laid off.

When the time comes, go full press on the job search, but take time to refine your pitch and, whatever you do, do NOT make these atrocious job-searching mistakes.

What about you? If you’ve lost a job, how did you cope with the lost income and get back on your feet?

This post is the first in a series on dealing with financial hardship. Later this week we will discuss whether you should ever use credit to weather tough times. Next week we will look at dealing with large medical bills and other unexpected expenses.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Exactly like this! When I was laid off from my job at 4:45 on a Friday, I took the weekend to wallow and feel sorry for myself. Then, on Monday I filed for unemployment. I immediately began to cut off all unnecessary spending. Our goal was to not touch our savings at all, so we cut back where we could. I networked my butt off. I met a lot of people for coffee because it’s cheap and allows for more conversation. In the end, I got incredibly lucky because I landed a job offer 3 weeks after losing my job. I think this post is spot-on.

  2. I would definitely encourage my friends to update their LinkedIn profile and network if they get laid off.

  3. I am in this same position. My position will be ending in December. I have been cutting back on my expenses. I am trying to keep a postive attitude about it all. I feel like God has a plan for me. The hardest thing for me is trying to figure out what positions to look for based on the jobs I have held in the past and my skills. That would be a post I would be interested in reading about. Thanks!

  4. Great post! I completely agree with the author. I was laid off from my position in mid-June and immediately started working diligently to find a new, better job. Some of the things I did included dramatically changing my resume(s) and cover letter(s), networking, taking workshops at my local career center, and interviewing with almost a dozen staffing agencies. I was able to get a 2-month full-time temporary position in my chosen field and this helped me re-build my confidence while giving me fantastic references for what I could do in a short period of time.

    After four months I was able to land a much better job, paying 30% more than my previous position. Although, I must say, the summer was difficult. The hiring season definitely begins in September! I think that’s one thing that job seekers need to realize, timing is everything and even if you are putting in the work, you might not immediately get the results you want. But I think I needed the time and to put in the work to realize my value and the kind of work environment I wanted to be in.

  5. SbonzadaRocka says:

    I was almost laid off, but returned to work after 3 months (was paid in the 3 months, while looking for a position with the company or outside). I was called back to my old job. Yay….
    This article is spot on becuase I was almost in this postion and view things very diffrently now. Trying 2 save more then I spend…

  6. This is always a terrible situation. I think that most people don’t have an emergency fund.. I know I dont. All those things do come to mind. Mostly, where will I work next..where do I look!

    Your weekend might even be ruined because you’re stressed out about your loss of income.

    Some solid information though! Thanks for the read!