Perhaps you’ve heard the expression: “Life is what happens when you’re busy making other plans.” It’s certainly true about an unexpected job loss. And it may cause stress over your financial situation. Here are a handful of steps you can take shortly after the loss of employment to help put yourself in the best financial position. Some of these are time-sensitive, so the sooner you act, the better.
File for Unemployment
While unemployment insurance typically covers less than half of your previous paycheck, it can provide some financial relief — generally up to 26 weeks. Since filing a claim can be time-consuming, file immediately so payments begin as soon as possible. There are eligibility requirements, including your unemployment being involuntary and through no fault of your own, and meeting your state’s time worked and wage requirements. You can learn more about your state’s unemployment insurance program online.
Adjust Your Budget and Spending
You’ll likely require some changes to your budget, at least temporarily. Try to focus on the essentials, like housing, utilities and food, and see where you can cut costs — or find cheaper alternatives — on nonessentials, like coffee shops and entertainment. If you’re saving for longer-term goals, like retirement or college, you may want to pause those contributions temporarily.
Evaluate Other Sources of Income
In addition to any severance and unemployment payments, you can consider cashing in emergency or other savings and investment accounts. You could look for part-time work, which generally does not affect your unemployment insurance income as long as you’re earning less than your unemployment benefits. Other possibilities are cashing in the value of insurance policies or annuities outside of surrender charge periods, accessing retirement accounts early, selling investments without taxable gains and borrowing money. Be aware that some of these options come with tax implications and fees. A financial advisor can help you navigate the trade-offs.
Understand Your HSA and FSA Options
You’ll want to get the maximum benefit from your flexible spending account (FSA) and health savings account (HSA). The funds in an FSA are subject to a “use-it-or-lose-it” rule, generally within 60 days from termination. Consult your Summary Plan Description to understand how your FSA works and how to use your funds. Your HSA is yours to keep after leaving a company, and there’s no deadline to use the funds. While you typically can’t pay health insurance premiums from an HSA, there are exceptions for COBRA premiums and some other health insurance premiums if you’re receiving federal or state unemployment benefits. Your plan administrator can help guide you.
Ensure You Have Health Insurance Coverage
Find out if your health benefits continue for any period and what is included. You generally can extend your employer’s coverage up to 18 months under COBRA, though it’s often expensive because you are liable for all monthly premiums. Joining your spouse’s or partner’s workplace plan could be an option, but you may only have 30 days to enroll. You can also look for coverage through the Health Insurance Marketplace, a function of the Affordable Care Act (ACA), where lower-income households may qualify for subsidies. Learn more about ACA coverage at healthcare.gov.
Whether your next step is moving into early retirement or finding new employment, working through these steps may help you feel more confident in your financial position and more prepared to take on whatever comes next.
