Managing Your Finances Through a Job Transition
If you’re one of the many people who have been laid off during this recession, you’re likely concerned about how to manage your financial situation until you secure a new job. Here are some tips I share with my clients that I’ve gained through personal and professional experience.
1. Cash is King. Do anything and everything you can to conserve cash during a period of unemployment. Having a solid cash reserve, avoiding credit card debt, and living within your means are great. Also important is slashing the excess spending out of the budget immediately when you get layoff news instead of waiting until when you run out of cash.
If you don’t have enough cash from the start, there are some things you can do immediately to help. Maximize the amount of cash you get in each paycheck by reducing or eliminating things that get deducted. The biggest deductions are typically taxes and retirement plan contributions, and both can be reduced to give you more cash in your paycheck. Under normal circumstances you shouldn’t change these, because adjustments to either will have long-term implications, but if you’ve already received a pink slip we’re not talking “normal” anymore.
2. Assess Your Benefits Situation. Most of us have a significant financial tie to our employer that goes beyond our paycheck. If you have all of your insurances through the company instead of owning them yourself, you’ll have to adjust.
3. Sign Up for Unemployment Benefits. You pay for the benefit, so use it. It’s amazing that some people put off signing up for this benefit because of ego, shame, or ignorance.
4. Spend Assets Cautiously. If you must dip into other assets to meet your expenses, be careful! Retirement plans are especially bad to tap into except as a last resort. Meet with a financial advisor or accountant to map out a plan to minimize the damages you’ll face from taxes and penalties.
—Joe McRae is an independent financial advisor with McRae Haakenson & Company, LLC.
Securities offered through LPL Financial, member FINRA/SIPC