Last month, employers said they planned to hand out more than 38,000 pink slips. That brings the total number of layoffs this year to nearly 314,000, according to the latest report from outplacement firm Challenger, Gray & Christmas—and there are thousands more job cuts planned this year at companies ranging from Bank of America to Lockheed Martin.
You might get lucky and avoid a layoff. But there’s no downside to being prepared, just in case. Here are seven steps you can take now to give yourself the best chance of coming through any unplanned stint of unemployment unscathed.
The average length of unemployment for those not working as of June was a little more than 26 weeks—or half a year!
Your emergency fund will help you bridge the gap between what you once earned and what you’re collecting now between any severance payments and unemployment benefits, and help ensure you can cover your expenses while you job hunt.
To figure out how many months your existing savings will carry you, make a bare-bones unemployment budget and divide your savings by the amount you need to spend per month. And be ruthless when scaling back on unnecessary expenses. Every dollar saved is another you can use to survive unemployment.
Just don’t cut important obligations, like making your minimum debt payments. “Missing a credit card payment can make interest rates jump to maximum levels, cause late fees to multiply and damage your credit rating, making future access to affordable credit difficult or impossible,” warns Bruce McClary, VP of communications for the National Foundation for Credit Counseling.
While unemployment payments won’t replace your salary, the money can make a big difference in how far you’re able to stretch your savings. “Don’t be too proud to apply for unemployment; you’re not getting something for nothing,” explains Certified Financial Planner Gary Silverman, founder of Personal Money Planning in Wichita Falls, Texas. “Your employers have been paying into the system in order for the state to pay you in the case of unemployment. [This] insurance is really just another part of your employment package.”
Specifics vary according to where you live, but it can take a few weeks from the time you apply until you receive your first check, so sign up as soon as possible. FileUnemployment.org has a helpful chart detailing how long you can claim unemployment and the maximum weekly amounts per state.
When it comes to layoffs, it may seem like your company is holding all the cards. But you’re often entitled to more than you know. Many companies provide severance packages, which can be invaluable when it comes to bridging the gap between jobs.
Know, however, that you don’t necessarily have to accept the first offer. “If you think you can get a little more in your severance package, then by all means, ask for it,” Silverman says. “What are they going to do, fire you?”
Silverman also suggests referring to your old employee and benefits handbooks because there may be other funds you’re owed, as well. Are you being let go just before a bonus is due? Do you have unused vacation time? If you’re not fully vested in your company’s retirement plan, what happens to the unvested funds? In each of these cases, you may be able to recoup some or all of the money just by asking.
If you’ve built a hefty retirement savings balance, it can be tempting to tap those accounts when you’re out of work. But cashing out before age 59½ can trigger taxes and penalties, and also forces you to sacrifice future returns. “You may not think $5,000 in a 401(k) is worth anything [now],” Silverman says. “But if you never have that $5,000, it can’t grow to $250,000, $500,000 or $1 million. You have to start somewhere.”
As for what to do with your retirement accounts, you’ve got a few options: You may be able to leave the money where it is, transfer it to your next employer’s plan or roll it over to your own Individual Retirement Account.
One of the most important employee benefits out there is health insurance. As soon as you lose your job, you need to find a new plan to protect your health and your finances. Per the Affordable Care Act, you could pay a penalty of $695 for not being insured this year.
“There is a saying that the best time to plant a tree is 20 years ago, and the second best time is now,” says Arleen Bradley, a career coach in Lawrence, Mass., who specializes in recovering from job loss. “That can be applied to obtaining health insurance when you have been laid off. You don’t want that saying to come to mind when you are at the doctor’s office, not feeling well.”
Start by checking out HealthInsurance.org’s handy, interactive map with information about which states sponsor their own insurance marketplaces. If yours doesn’t, you can sign up for coverage through the federal exchange. Alternatively, you may be able to keep your old policy for a limited time, thanks to COBRA. But be warned that this option can be pricy, since you’ll be responsible for both the employee and employer payments.
From student loans to credit cards, chances are, you’re wrangling some kind of debt. And no matter how much progress you’ve made, losing your job is likely to throw a wrench in your debt-reduction plans. Again, it’s important not to neglect your obligations, but you may be able to strike a deal with your creditors if you call them before missing or being late on a payment.
“For temporary setbacks, creditors may offer deferred payment plans for one or two payment cycles, which can make a significant difference for people struggling to repay,” McClary says. “Others may benefit from a limited period of reduced interest that allows them to maintain timely payments on a restricted budget while they get their finances back on track.”
One caveat: “Don’t get stuck in the trap of spending your savings, trying to start a business when you should be keeping your dollars secure, or else you could find yourself in the tough situation of having no savings, a burden of debt and still no job,” Silverman says. Instead, look at your side hustle as an easy way to plump up your savings—and pad the amount of time you have to find a new job that’s right for you.