Smart Financial Tips if You’ve Been Laid Off
Originally published in the Journal Inquirer
The financial hardships of COVID-19 have engulfed Americans from all walks of life, socioeconomic backgrounds, education levels and geographic regions. The hospitality industry, travel and leisure, retail industry, automotive industry and many others have been impacted in some way. Even Disney World, known as the Happiest Place on Earth, felt the effects as they halted operations and closed their doors on March 16th. Many companies have drastically scaled back their operations, cut costs where they could and were looking for other ways to preserve the long-term needs and livelihood of their businesses.
Unfortunately, for some, these measures haven’t been enough. Corporations and businesses have been forced to reduce their best asset – their people. According to the US Department of Labor and reported by CNNBusiness.com, there have been over 33 million unemployment claims since mid-March. In many states, the economy is slowly starting to re-engage but the lasting effects are still yet to be determined.
If you have found yourself in this unfortunate situation and are now navigating the complexities of being unemployed, there are some key strategies to follow. These can help keep your financial plan on the right track.
- Talk to your company about healthcare and severance
Healthcare costs are a big expense and a cost you don’t want to have to worry about if you should get laid off. Through The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), workers and their families can elect to continue their health benefits provided by their group health plan for a designated period.
Whether you are entitled to severance or not will depend upon your specific company and how you were laid off. Companies that do historically have a severance program pay one to two weeks of salary for each year of employment. If you have been laid off and do not have a contract in place, speak with your Human Resources professional and inquire about a severance package.
- File for unemployment
The CARES Act, a $2 trillion stimulus package, was signed to provide economic relief to families and small businesses impacted by the coronavirus. This legislation provides additional benefits to those out of work at this time including 1) Allows states to temporarily increase unemployment benefits and receive federal payment for the additional amount. 2) States are encouraged to waive the typical one week waiting period. 3) It provides an additional 13 weeks of benefits. 4) Assists those who are self-employed or independent contractors.
- Reduce your expenses
Now is a good time to pull out the household budget that you created a few years ago. Is it still accurate? Expenses like dry cleaning and lunches out are most likely not being incurred during your absence from the workforce. Expenses associated with entertainment, leisure and travel have also been significantly reduced by COVID-19 recommendations to social distance and shelter-in-place. Where else can you reduce expenses?
- Contact creditors
Do your best to pay your bills on time, even if you are only meeting the minimum payment requirements. Contact your lenders or creditors immediately and ask about any hardship provisions or options they may be offering. They may be able to temporarily lower your interest rates or payment amount or could possibly put your loan in a deferment status which means your late payments will not be reported to the credit bureaus. Another important tip – request a free credit report from the credit bureaus (Equifax, Experian, and TransUnion) to make sure your information is accurate.
- Try not to cash in your 401(k)
If possible, leave your 401(k) intact. For those who are dealing with extreme financial hardships, through the CARES Act, you can withdraw up to $100,000 this year without the usual 10 percent penalty if you have been effected by COVID-19 and meet certain requirements. Remember, use your 401(k) as a last resort.
The uncertainty and fear plaguing most families are commonplace and financial hardships are being seen across the board. If you have been laid off as a result of this crisis, thankfully there are steps you can take to mitigate some of the long-term effects on your financial well-being. The recent CARES Act will hopefully offer some resolution and help for those in need.
Joel Johnson, CFP®