For many of us, there’s a silent fear that we may one day go to work and be told our services are no longer required. Depending on the stage of your life, that fear could be fleeting or visceral. For those who are financially independent or close to retirement, premature job loss may only demand a slight adjustment to retirement plans or lifestyle. But for people who depend on a steady paycheck to support their lives, the news can be gut-wrenching.
If you find yourself in the latter category, there is hope. Here’s how to manage your finances in the event of an unexpected termination of employment, without depleting your nest egg.
1. Don’t panic
It’s important to remember that life will continue, and the trying times will eventually pass. Take psychological stock that something dire has occurred, and acknowledge that it’s okay to be upset. Aside from the financial aspect, your work is a huge part of defining your identity, so job-loss can have a profound psychological impact from loss of self-esteem to depression. This is a time to take care of yourself and, if necessary, don’t shy away from getting assistance from mental healthcare professionals.
2. Review your severance package thoroughly
Make arrangements with your financial institution and financial planner to address transferring retirement benefit plans that you are required to move out of your former employer’s platform. It may even be worthwhile to have a lawyer review your severance package, if you think it doesn’t adequately compensate you for your years of service.
3. Reduced income means reduced spending
It’s no longer “business as usual” with your finances. To help you monitor your needs from wants, break down your expenses in the following way:
Basic (things you can’t live without) – food, shelter/household operations, transportation, debt repayments, health & personal care, insurance
Discretionary (things you could live without) – cable, vacations, dining out
Additional expenses – renovations and other wish-list extras
A job loss provides the perfect opportunity to review your budget, and hunker down to the basic necessities until you get another job. If you are entitled to a severance package, it would be prudent to spread out the severance received over an extended period (e.g., one year). This will give you some source of income and the time to look for another job.
Also, review the insurance benefits that you have lost at work. If they are critical and can be afforded, you should explore the possibility of converting those benefits to a private plan where possible, and within the stipulated time limits.
4. Be proactive about contacting your lenders
If you cannot meet your debt repayments with your reduced income, lenders will appreciate getting a heads up so they can be proactive in working with you – rather than contacting you after you have defaulted on your payments and consequently damaged your credit score. They may be able to offer lower payment plans and/or allow you to defer some payments.
Of course, before you reach this stage, it’s wise to be proactive and explore payment protection insurance. This can be purchased for your various debts like your mortgage, credit cards, loans, and lines of credit. If you have this insurance in place, notify your lender so that the insurance benefit can be activated. This will take a huge burden off of you for as long as the benefit is applicable.
5. Stick to a routine
Work provides a familiar routine that takes up a sizeable portion of your day, so establishing a routine while you undergo a job search can be highly beneficial. This might incorporate a morning walk, followed by scheduled time for online job searches and networking. Creating a daily list and sticking to it can give you a sense of accomplishment and feeling of being productive.
6. Review your career plan
Maybe it’s time to make a career change. This might require some retraining or updating of your skills or knowledge. See what educational resources are available in your area. You can also avail yourself of any job placement services offered like resume writing, interviewing prep, or job searches. Explore private and government resources for people who are out of work. These often offer provisions for training, job search assistance, or job placements – sometimes at little or no cost to you.
7. Make time for networking
Find opportunities through professional associations, friends, colleagues and various groups. Volunteering with your favorite charity or project can help you learn new skills, and boost your mood by getting you out of the house and interacting with people in a positive environment.
As with health, an ounce of prevention is worth a pound of cure. Ideally, you will have a contingency plan in place so that in the event of job loss, you’ll have a sufficient emergency fund, cost-effective access to credit, and back-up insurance plans in place so that you don’t fall into crisis mode. If you’re not sure whether you’re sufficiently prepared for a sudden loss of income, your financial planner can help.
Njideka Harris-Eze brings enthusiasm and passion to her role as a Consultant in T.E. Wealth’s Financial Education and Employer Services team in Calgary. She empowers clients through increased financial literacy, helping them fully understand their pension and benefit programs to create financial plans that optimize their worth.