Facing a sudden job loss can cause a sense of panic or anxiety. Without a steady paycheck, it can be tempting to make short term, rash decisions, especially when it comes to personal finances. Below are a few tips to consider to help weather this period of uncertainty.
File for Unemployment / Consider a Side Hustle or Gig Work
First and foremost, if you are laid off from your job, you should start the process of filing for unemployment benefits as soon as possible. The amount you ultimately receive will be dependent on how much you were making in your prior employment, if you have another job or other sources of income, and will vary state by state.
Another consideration for earning income during a period of unemployment is gig work or side hustles. If you decide to try and earn extra income this way, just be sure to do your research on how this may affect any unemployment benefits you may receive in your state. How much income you make from another part-time job, side hustle, or gig work could cause a partial reduction in how much you receive in unemployment benefits or could cause you to be ineligible for unemployment benefits all together.
Understand Your Health Insurance Options
If you received health insurance benefits through your former employer, understand your options for maintaining coverage. Experiencing a lapse in coverage could be financially catastrophic. You may be able to maintain the coverage you had through your former employer under COBRA. However, by electing COBRA, you will be responsible for 100% of the premiums (which previously was likely split between you and your employer or was 100% covered by your employer) plus an administrative fee. Other options to explore besides COBRA include possibly being added to a spouse’s health plan if they allow for it, the health insurance exchange in your state, or purchasing a health insurance plan directly with an insurance company.
Pay Down Debt
If you haven’t created a plan for paying down debt or you’re just making minimum payments, try to review and re-work your budget to see if there is room to pay more toward your debts (especially consumer debts like credit cards). Look closely at the non-essential expenses and see if there are things you can cut or do without. Whatever you save by cutting certain expenses could potentially be re-deployed toward paying down your debt faster.
Understand Options for Your Former Company’s Retirement Plan
You have options when it comes to your 401(k) or 403(b) that you may have participated in through your former employer. A financial advisor can help you understand your options and make a decision that suits your needs. Options may include: 1) keeping your money where it is (though small balances may not be allowed to stay in the plan. The typical threshold is $5,000 or less), 2) rolling over to an IRA, 3) rolling over to your next employer’s retirement plan, or 4) cashing out and paying all the taxes and potential penalties. While cashing out may be tempting during a period of uncertainty like a job loss, this is the worst option available and should only be done if you truly have no other alternatives to meet short term cash needs.
Understand Equity Options
If you received non-salary compensation like stock options, time is of the essence to make a decision on whether to exercise vested options or not. Generally, you have 90 days or less to decide whether or not to exercise vested options, but be sure to ask/verify with your company how much time you have to exercise. A tax or financial advisor can help you evaluate your options and understand tax implications.
Review Other Benefits
You should evaluate what other benefits you may have been receiving through your former employer like life insurance and HSA/FSA benefits. If you had opted for extra life insurance beyond what your employer may have provided as a base benefit, you may be able to continue this coverage by paying premiums directly to the insurance company. If you had a Health Savings Account (HSA), this is typically portable if you enroll in a High Deductible Health Plan (HDHP) with a new employer. If you don’t enroll in another HDHP, you can still use your HSA dollars in the future for eligible health care expenses as needed. Flexible Spending Accounts (FSA) are typically not portable. Any unused dollars in an FSA after the date of termination are typically forfeited. Try to submit eligible claims through your termination date if possible.
Securities and Advisory Services offered through LPL Financial, member FINRA/SIPC, a Registered Investment Advisor. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.