The worst has happened to you financially—you lost your job. Before you let the “what ifs” take over and start panicking, stop, take a deep breath, and read this primer on what to do right now to protect your finances.
While some wallowing is allowed, the quicker you take proactive action after being laid off, the faster you’ll get your money back on track.
1. File for unemployment
The sooner you file for unemployment, the sooner you’ll receive payments, and the less of a deficit you’ll have each week. Keep in mind that you are eligible for unemployment even if you received severance pay. How much you get depends on your weekly earnings prior to the layoff and may be based on the maximum amount that your state offers.
Many state government websites have calculators on their unemployment pages, like this one on Washington State’s website. Such calculators allow you to determine how much you are eligible for and for how long you can collect. Also, check this resource from WikiHow on How to Apply for Unemployment Benefits.
2. Face your income reality
Take a hard look at how much money you have to meet your financial obligations. What’s due each month, and when? To your expected unemployment payment, add any extra sources of income, such as the severance package from your employer, your emergency fund, your spouse’s income, income made at any part-time jobs you may have and any annuities or alimony.
3. Immediately cut most or all discretionary spending
Sound extreme? It isn’t. The extra $50 you spend every week on this and that adds up to $200 at the end of the month, and that’s money you can use to pay a fixed expense, such as your utilities. If going cold turkey on unnecessary spending sounds difficult, choose a small amount of money to spend per week—say $10—and stick to it. You’ll be surprised at how good you get at living on a fixed income.
Related article: 7 Brilliant Ways to Live Well On a Fixed Income
4. Create a survival budget
It’s triage time when it comes to your budget. Rather than think monthly, budget on a weekly basis, which will keep you focused on the big picture. Scour your budget for anything you can cut, and then determine how much money you’ll need on a weekly basis to stay in the black. This allows you to keep spending under control for things like groceries, and it is much less overwhelming to see the smaller weekly budget numbers.
5. Negotiate with your creditors
Before you miss any payments on credit cards and other loans, discuss potential payment relief plan options with your creditors. Being proactive and letting your creditors know about your plight ahead of time makes them more likely to work with you by lowering your payments temporarily or giving you a 30-90 day reprieve. Also check into getting a “Pay as You Earn” repayment plan, deferment or forbearance for your student loans.
6. Prioritize your expenses
You may not have enough money to cover all your bills, especially if you’re unemployed for an extended period. For that reason, it’s important to list your bills in order of importance. The top five bills you should pay first are your mortgage or rent, utilities, food, insurance, and medical care. Next would come any credit cards or loans. If you can cover these bills, you’re more likely to pull through without too much long-lasting wear and tear on your finances.
7. Resist the urge to splurge
If your knee-jerk reaction to stress is spending, remind yourself of this fact and resist. Now is not the time for indulgences, no matter how bad you feel. And though you might experience some fleeting relief from your shopping binge, think of how awful you’ll feel when you realize you needed that money for necessary items like groceries.
If you don’t trust yourself to spend without some help, call on a friend or family member to be your budget buddy and voice of reason.
8. Look for immediate part-time work
While you’re searching for the next ideal job, stretch your savings as much as possible by also looking for employment to tide you over during the search. Within reason, grab the first thing that comes along to make money, remembering that the situation isn’t permanent. The fact is that replacing even a percentage of your income helps.
A wide variety of opportunities exist for making money, including working for a temp agency or on your own by working online. You can also make money as a personal shopper or doing handyman jobs, mowing lawns, and plowing snow.
Related article: 5 Quick-Start Jobs For The Suddenly Unemployed
9. Avoid raiding your investments
Reserve tapping into your IRA or 401(k) fund as a last resort. There are penalties for taking out money early if you are under a certain age, and unless it’s a Roth IRA, you’ll also have to pay income tax on the amount you withdraw. Withdrawing from your retirement fund causes you to lose compound interest and robs from your future.
10. Ask for support from friends and family
It’s difficult to go this alone. Get your significant other and kids on board regarding the emergency financial plan. Talk about the necessary cuts to your budget and stress the fact that the situation is temporary. Even if you are single, it’s good to have someone with whom you can talk when you feel discouraged.
Telling friends and family also makes them more understanding and aware when it comes to social occasions. For instance, they won’t expect gifts from you and will be likely to suggest cost-effective socializing like inviting you over for dinner and a movie.
Hopefully your unemployment is short-lived and these precautions won’t be necessary. Either way, you’ll have your financial house in order.