Develop Financial Plan to Guide You After Layoff

By Toni Vranjes

April 1, 2009

If you’ve been laid off, you’re likely to face a lot of painful emotions. But as you’re grappling with those feelings, you still need to address a very practical concern: feeding your family and paying the bills.

The key is to develop a financial plan to get you through the rough times. One of your first steps should be filing an unemployment claim, so you can start receiving benefits as soon as possible. You also should develop a household budget to track your income and expenses. Look for ways to be thrifty and to bring in extra money. But even though you may be counting every penny, make sure you have health insurance.

Unemployment Benefits

Although unemployment benefits may be just a small fraction of your previous salary, every little bit helps. So apply as soon as possible. Benefit amounts and eligibility rules vary by state. For details, visit the website of your state unemployment office.

Personal Budget

Another priority is creating a budget. Predict your monthly expenses over the next two years, and then figure out how to cover those expenses, advises Jon Baker, a certified financial planner.

Baker covers these topics at the Atlanta office of outplacement firm Right Management, where he teaches financial classes for people who have lost their jobs. Baker also has led workshops for companies such as AT&T and IBM.

“In the current market situation, because things are so volatile, you need to have two years worth of predictable income,” Baker says.

The predictable income might come from severance payments, unemployment benefits, your spouse’s job, stock investments, or other sources. Put that income into liquid accounts, which can be converted into cash quickly and easily, to cover your short-term expenses. Any remaining money can go to long-term savings plans, such as 401(k)s or IRAs.

Money-market accounts often are the best option for your short-term needs, Baker notes. These accounts are generally very liquid and offer better returns than checking accounts or savings accounts. In today’s volatile economic climate, be sure to choose a money-market account that’s insured by the FDIC.

If possible, avoid early withdrawal of money from your 401(k) or IRA. If you take money out of these accounts before age 59 ½, you could face hefty taxes and penalties.

Everyone’s situation is unique, however, so Baker also suggests consulting a personal financial advisor.

Be Thrifty

It’s also important to cut back on unnecessary expenses. If you’re having a hard time in this area, Baker recommends taking detailed notes of all your spending.

“Write down every penny you spend, whether it’s 25 cents in a gumball machine, or $7 for a cup of coffee,” he says. “I’ve seen people do an about-face when they’re committed to that form of tracking. They don’t spend money where they don’t need to.”

Part-Time or Temp Work

If you can’t meet your basic expenses, you may need to get a part-time or temporary job. But you should carefully weigh the benefits and drawbacks, says Ellen Sautter, a career consultant at the Atlanta office of Right Management.

On the one hand, part-time or temp work will take time away from your job search. On the other hand, you’ll earn some money to help make ends meet. These types of jobs also could help you learn valuable new skills and could lead to a full-time, permanent position.

Food Stamps

If you’re still financially strapped despite all your efforts, you may need government aid. One resource is the federal food-stamp program, officially known as the Supplemental Nutrition Assistance Program, which helps low-income people buy food. To apply, you need to fill out a state application form.

Health Insurance

An area where you might be tempted to scrimp is healthcare coverage, but don’t risk it. Health insurance is crucial.

One option is COBRA, a program that allows unemployed people to keep their health coverage for a certain period. As part of the 2009 federal stimulus package, the government will subsidize 65 percent of premiums for people who lose their jobs between Sept. 1, 2008 and Dec. 31, 2009. The subsidy is available for up to nine months.

If COBRA is still too expensive for you, consider getting an individual health policy. Many different types of plans are available, so research all your options.

Health coverage also is available through government programs, but applicants must meet income criteria. To locate free or low-cost health plans for children, visit the website Insure Kids Now, which is run by the U.S. Department of Health and Human Services.

So find a health plan that fits your needs, stick to your budget – and hold your head up high as you seek a new job.

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