You’ve Been Laid Off – Now What? 5 Smart Financial Tips To Do Right Now
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The financial hardships of COVID-19 have encapsulated Americans from all walks of life, all socioeconomic backgrounds, all education levels and all geographic regions. When the Happiest Place on Earth, known as Disney World to millions of people, furloughed thousands and thousands of employees and closed its doors on March 16th, you know the effects have been hard-hitting. The hospitality industry, travel and leisure including the airline industry, retail industry, automotive industry have all been hit and virtually almost all industries will be impacted in some way. 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 many companies, these measures haven’t been enough. And, therefore corporations and businesses have been forced to reduce their best asset – their people.
According to the US Department of Labor and reported by a CNBC.com article on April 23, 2020, over 26 million Americans have filed unemployment claims since the middle of March. The full impact of this global pandemic will be far-reaching and many of the repercussions have yet to rear their ugly head.
If you have found yourself in this unfortunate situation and are now navigating the complexities of being unemployed, there are a few financial tips you can do right now:
1. Talk to your company about severance and healthcare
Healthcare costs are a big expense in many households 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. If you were furloughed, meaning that you are still an employee but have been forced to take a break from work without pay or to reduce your hours, you will most likely not be receiving a severance. For those who have been officially laid off, it’s important to note that severance is not mandatory by US companies and some companies do not pay it. The companies that do, typically pay one to two weeks of salary for each year of employment. Some employment contracts stipulate such situations as these but in many circumstances, companies do not provide contracts with these provisions upon 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.
2. File for unemployment
In late March, the government signed The Coronavirus Aid, Relief, and Economic Security (CARES) Act which provides economic relief to families and small businesses impacted by the coronavirus. The $2 trillion stimulus package was designed to help those struggling with financial hardships as well as restore confidence and stability within our economy.
The legislation that was passed recently provides some additional benefits to those out of work at this time. According to a Fact Sheet issued by the White House on March 27, 2020, the CARES Act: 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) The CARES Act created a new program to assist those who are self-employed or independent contractors.
3. Reduce your expenses
Debt.com surveyed over 2,600 people in February 2020 and found that close to 80% said they do use a budget. Now is a good time to pull out the household budget that you created a few years ago. Is it still accurate? Where can you cut back during this period? 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. But, where else can you reduce spending? Unfortunately, tightening your budget might be required so that your necessary expenses can be paid.
4. Contact creditors
Do your best to pay your bills on time, even if you are only meeting the minimum payment requirements. If you know you may have trouble paying some of them, 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 with all three of the credit bureaus (Equifax, Experian, and TransUnion) to make sure your information is accurate.
5. 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 meet certain requirements. These include; if you or your spouse tested positive for COVID-19 or you are experiencing any negative financial repercussions due to a change in work status. Remember, use your 401(k) as a last resort.
The full realm of effects from this global pandemic on the American psyche is still yet to be determined. 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.
