Losing a job can be an incredibly stressful experience for even the most well-prepared individual.
First, take a breath and know you are not alone. While things may seem scary or bleak right now, you should focus your efforts on what is within your power to minimize the financial damage and prepare for a new position and opportunities.
Here are the things you should be considering right now:
1. Fill the income gap
Without regular pay, there are a few sources of income to consider, including any severance, unpaid time, unemployment benefits and part-time work.
Before you leave your current position, ask about severance benefits. Details are likely clarified in your employee handbook. If you’re offered a severance package, take time to determine whether you’d like to negotiate for more or ask a lawyer to review it.
You should also ask to be compensated for unused vacation or sick days. Pay for unused time varies by company, so again, check your employee handbook or HR policies.
You should also apply for unemployment benefits immediately, since it may take some time before you start receiving benefits. And it may take some time to get your application in due to higher demand right now. The Department of Labor’s site offers links to unemployment agencies in each state, where you can learn more about the application process.
Unemployment benefits usually last 26 weeks in most states but check out your state laws to see if it’s possible to get an extension. Keep in mind that you can’t receive unemployment benefits if you quit or were fired due to performance or other problems. If you are unsure if you qualify, contact your state unemployment office for more details.
You also can look to temporary or part-time positions or start your own business. It will be trickier due to the impact of the current environment, but there may be some options. The Small Business Administration has programs that offer advice to people who want to start their own businesses. One caveat: Check on your state’s rules on doing any work while getting unemployment benefits to see if your benefits will be reduced if you have other income. And be sure not to neglect your job search while doing interim work so that you’re back to full-time employment as soon as possible.
2. Revise your budget and spending
With less money coming in, it’s important to start considering your spending and budgeting.
First, cut the easy expenses, such as dining out or a daily cup of coffee. Then make sure you’re not being charged for services you can no longer use, such as gym memberships, children’s summer camps or sports leagues, or season passes to performances or amusement parks. You may also find smaller savings that will add up if you review cable, phone and internet plans or subscription services.
Then start looking at bigger expenses. Check to see if your state or community has implemented rent freezes or talk with your landlord about reducing or deferring payment. You might also consider moving in with friends or family temporarily or take in a roommate, if feasible.
If you have debt, such as a mortgage, car loan or credit card, reach out to your lender to see about loan forbearance or interest rate reductions. Currently, the federal government has deferred payments and interest accrual on federal student loans. If you are able to pay those, you can cut down on the interest paid over the life of the loan. Interest rates are also extremely low, so if you need additional cash, you may be able to take out a home equity loan or other line of credit but be prepared that banks have started to tighten requirements for home equity loans.
3. Start your tax planning
Taxes may be the last thing on your mind, but the tax man hasn’t forgotten about you.
The federal government and many states tax unemployment benefits as ordinary income (like wages). Be sure to check your state’s tax laws to see if you will owe. One big difference is that you don't have to pay Social Security and Medicare taxes on this income.
Avoid a surprise tax bill by having up to 10% of your unemployment benefit withheld. You can ask to have taxes withheld when you apply for benefits, or you can file IRS Form W-4V, Voluntary Withholding with your state unemployment office.
If you believe your layoff is temporary or need to stretch benefits, consider bypassing the tax withholding, with the idea that you may have to increase your paycheck withholdings when you return to work or make estimated tax payments each quarter.
Also keep in mind that if you end up earning more income this year, you may fall into a higher marginal tax bracket and the 10% withholding may not be enough. You will want to revisit this throughout the year and adjust paycheck withholding or adjust quarterly payments as needed.
You'll receive a Form 1099-G from your state unemployment division next January reporting the total unemployment compensation you (and whether you had any state or federal tax withheld from your payments), which you'll report on Schedule 1 of your 1040 when you file your federal income taxes.
4. Look for a new job
The job market may be difficult to navigate right now, but do not hesitate to start your job search. Update your resume and post it to online job search sites. Also, reach out to everyone you know who might be able to help with a job, this includes colleagues or supervisors from past positions. Contacts are often the best source of new opportunities. And if you had a good experience with a previous employer, let them know you’d be interested in returning in a different position.
Be specific about what you want to do and in which organizations or industries you might like to work. Be prepared to talk about the skills and expertise you can offer to a company. As part of this effort, join or become more active in professional networks or associations in your field to stay current and make new contacts. In addition, the Department of Labor also offers many resources for job seekers.
5. Look after your mental health
Looking for a job and maintaining your income can take intense focus, which is why it’s important to remind yourself of the value of taking a break and enjoying yourself. If you give yourself the chance to relax and have fun some of the time, your search will seem easier.
While social opportunities may be limited given the current pandemic, there are still several things you can do to remain active. Consider taking a jog, walking the dog or riding bikes with children.
Also, use this time to read a new book, develop new skills or learn another language. There are often free apps, websites and videos to help you refine the skills you have or learn some new ones haven’t had the time to develop. Some of these skills may prove useful in finding a new position or career path.