The loss of a job can have a big impact on your personal finances. After all, chances are good you count on your paycheck to cover life’s necessities. But if you make the right financial moves immediately, you can limit any potential fallout of lost income.
To ensure your finances remain as stable as possible until you find new employment, be sure to take these six steps.
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1. Sign up for unemployment benefits
If you are eligible for unemployment benefits, you’ll want to file for them as quickly as possible. Eligibility depends on your state’s unemployment rules, which usually require you to have worked for a certain length of time before you can qualify for benefits.
It can take some time for unemployment benefits to get approved and your payments to start coming, so work on this process ASAP.
2. Check your emergency fund balance
While unemployment benefits can replace some of the wages you were previously earning, they generally do not cover your entire lost paycheck.
As a result, you may need to rely on your emergency savings account to help cover the shortfall. Check your account balance to see how much money you have available to help you bridge the gap between your unemployment and your expenses.
3. Take a close look at your budget
When you are no longer getting a paycheck, you’ll want to pare your budget down to the necessities so your unemployment benefits stretch as far as possible and you need to rely on your emergency fund as little as possible.
Make cuts to anything non-essential such as entertainment and dining out. Remember, it’s only for a short time until you get back on your feet. And drastic budget cuts can help you to avoid ending up in a lot of credit card debt due to being unemployed.
4. Explore your health insurance options
You need to make sure you have health insurance coverage if you were getting it from your job. You should be able to remain on your employer’s plan through COBRA. However, if your employer was previously subsidizing your premiums, you are going to have to start covering the entire cost yourself.
It’s sometimes less expensive to sign up for a policy through the Health Insurance Marketplace — and the loss of your job should be a covered life event that allows you to sign up any time. Depending on your current income, you could even potentially get subsidies to help cover premiums.
5. Make a plan for any severance pay
If you’ve received severance pay from your job, it’s likely a good idea to use this money to bulk up your emergency fund since you’ll probably be starting to draw down the balance.
However, if you have plenty of emergency money saved, then you may decide to use this severance pay for other things such as getting some training to make it easier to find another job or start a business.
6. Assess your retirement plan options
Finally, you’ll need to decide what to do about your workplace retirement plan, if you had one.
You may want to leave the money invested in your employer’s plan but could also take the opportunity to roll over the money into an individual retirement account (IRA). This can provide more flexible investment options. There are many great online brokers that allow you to open a rollover IRA, so research different accounts to find one that’s right for you.
By taking steps to reduce spending, maintain insurance coverage, and protect your retirement security, you can minimize any long-term consequences that could result from a job loss. And with many employers desperate to hire new workers as the economy recovers from COVID-19, hopefully you’ll be back to work before you know it.