How to Regain Financial Footing After a Sudden Job Loss
Unexpected job losses are traumatic, difficult for those who suffer them to understand and cope with.
Whether one is let go in a large company’s widespread layoffs or put on indefinite furlough as a result of a global pandemic, sudden unemployment can have significant emotional and psychological consequences — but its financial ramifications are much easier to manage.
A job loss doesn’t have to result in a significant deterioration of lifestyle. By taking these steps before and during unexpected unemployment, most everyone can maintain financial integrity and search for new work with confidence.
Understand Your Essential Cash Flow
The first step to getting control of one’s finances, whether a person is in a tight financial place or not, is understanding household cash flow — the money coming in vs. the money going out.
Usually, households will have positive net incomes, meaning members are making more money than they are spending, which gives them more agency to purchase things they want and saves for the future.
However, after someone in a household suffers a job loss, it is important to revisit the cash flow calculation to determine whether the net income has turned negative.
A negative net income indicates that expenditures are higher than incomes — an unsustainable situation that needs to be remedied, or else the household is likely to run completely out of funds.
Single-person households that have suffered a job loss are likely to have negative cash flow, but households with multiple incomes might maintain positive net incomes even after one person unexpectedly becomes unemployed.
Take Advantage of Emergency Savings
Long before a sudden job loss, households should work to build up emergency savings accounts, which should contain enough money to cover between three and six months of regular expenses.
Alternatively, some people opt to fill their emergency savings with between three and six months’ worth of income, which is easier to calculate but might take longer to save. In either case, this money should be earmarked for dire circumstances only — like unexpected unemployment.
Households with severe negative cash flow should dip into emergency savings to cover the essentials, like rent, utilities, and food.
Households should also look into what unemployment benefits are available to them, like COBRA, a continuation of health coverage by a former employer, or even unemployment checks.
Households suffering from job loss shouldn’t be afraid to take advantage of any benefit they can — but they should avoid dipping into retirement savings.
Cracking open retirement funds early comes with a steep cost, including potentially compromising financial stability into the future.
Create a Crisis Budget
While calculating household cash flow, it would be wise to start working on a crisis budget.
Households that already use a budget to manage their expenses should consider revising their financial plan given their current circumstances; superfluous expense categories should be reduced or eliminated altogether to prolong savings and provide time for the unemployed party to get back on their feet.
How severe the crisis budget becomes depends on a couple of factors, such as the size of the household’s emergency savings fund, the likelihood of finding new work quickly, the number and age of people within the household, and more. It might be wise to use money management software to help with the development and administration of the crisis budget, especially as savings begin to dwindle or as household members gain new employment.
Brainstorm Money-making Strategies
Finding new, full-time work should be an unemployed person’s top priority, but if that is impossible — perhaps because of a global pandemic — the household should consider alternative ways to bolster their income and bring more balance to their cash flow.
There are countless options, but some worth considering include:
- Renting a spare bedroom. Being a landlord isn’t as easy as many expect, but those who have space might appreciate a few hundred dollars extra per month. Still, households should weigh the pros and cons before finding renters.
- Performing gig work. Plenty of apps make it easier than ever to pick up extra cash through easy activities like driving, delivering food and groceries, and completing chores and household tasks.
- Freelancing. Some skills earned on-the-job translate well to freelance work. Professionals with experience in customer service, programming, and coding, writing, and editing as well as other fields can find plenty of freelance jobs available online.
- Reselling. It might feel that selling one’s belongings is a desperate move, but many households have much more stuff than they need or use. Reselling can be lucrative, especially if one finds items that hold value well or are currently trendy.
A sudden and unexpected job loss is traumatic, but it isn’t the end. By taking stock of one’s financial situation and making calculated decisions regarding expenses and income, anyone can recover from unemployment even stronger than before.
