How to Plan Finances When Laid off

Here are a few things to consider in the event of a decrease in income or lay off.

Expense side

  1. If you haven’t been using a budget up to this point, you definitely need one now. You can prepare a conventional budget and then start trimming down expenses, or prepare a needs and wants budget and eliminate most if not all of the wants expenses.
  2. Eliminate all discretionary spending
    1. Cancel all memberships and subscriptions. These are all “nice to have” but are not necessary for your day to day life. Cancel gym memberships, magazine subscriptions, cable/satellite TV subscriptions and other recreational memberships like golfing etc.
    2. Bring your “entertainment & eating out” budget line to $0. If you had set aside money each month for entertainment & eating out, this money needs to be redirected towards paying for more crucial expenses like rent/mortgage payments or put towards emergency savings. Stop eating out all together and encourage your partner to do the same as well (even if they are not laid off), this will allow the maximum amount of funds to be allocated to more critical expenses.
    3. Vacations for the family should become “stay cations” at this point. Taking a vacation and putting it on credit creates a temporary enjoyment while you’re on your vacation, but a lot of undue stress when you return. Minimizing stress is important.
  3. Address negotiable/varying expenses and try to reduce them
    1. Re-evaluate your insurance policies. Now this is a sticky one because it’s important to strike a balance between feeling adequately insured and spending extra money for the bells and whistles that can come with getting insured. You don’t want to put yourself in a situation where you remove so many features from your insurance policies to save on money, but then find yourself spending more money/getting into more debt to pay for unexpected expenses when a claim is made. Some things to consider:

With auto insurance if you are planning on increasing your deductible to save on cost, would you have the money in cash to pay for the higher deductible if a claim was made? For example: Our insurance went up from $79.00/month to $85.50/month as of May 1, 2016. We never had a claim for years. That increase equates to $78/year in additional costs, which is not enough for us to start playing around with our deductible which is currently at $500. We are also both currently employed. So we decided not to change anything in our policy this year, but every situation is different. Evaluate your own situation carefully.

With life insurance, we have two separate Term to 65 life insurance policy of $700k each which costs us $103/month combined. We don’t have any riders attached to this policy so it’s a pretty straight forward policy. However, there are so many different riders that can be added to the basic policy, and each rider costs money each month. From a cost of living/inflation rider, child protection rider, critical illness rider, term conversion rider, waiver of premium rider… and the list goes on and on. It’s important to be very cautious of whether or not to cancel certain aspects of your life insurance policy, if at all. Life insurance is based on your age so anything feature that is cancelled may cost a lot more to add back on in the future if you wanted to do that. I am not an insurance expert, so it’s important to do your homework and talk to the experts to see how cancelling certain features of your insurance will affect you now and in the future.

Renegotiate interest rates and consolidate debts.  The best time to renegotiate interest rates on your debts or seek a consolidation loan is when you are employed. Renegotiating your rates when employed with good income and good credit history is beneficial because you are not seen as a high credit risk to financial institutions.

It also makes for good financial practice to strive to lower the cost of borrowing as much as you can and as often as you can, whether you need it or not. However, if you find yourself without work and unable to lower your interest rates, here are a few ways the can help to lower your cost of borrowing each month until you have the income to tackle the debt:

  1. Use low interest rate debt (i.e. unsecured line of credit or HELOC) to pay off high interest rate debt (i.e. credit card debt).
  2. For loans like personal loans or car loans, see if the bank can increase your loan term (refinance), thereby reducing your monthly payments. Even though you will be paying more in interest in the long term, it will give you the breathing room to tackle mandatory expenses like food and housing costs.
  3. Don’t rush to make more than the minimum payments on your debts .However, making sure that you make at least the minimum payments will ensure that you don’t damage your credit score. It does not take much to damage a credit score, but it can take a while to bring it back up again.

 Income Side

  1. Apply for qualifying government benefit like employment insurance
    • Depending on how you left your company and how long you have worked before being laid off, you may qualify for employment insurance (EI) for a certain number of weeks/months. Apply for EI as soon as you qualify. This will ensure you start receiving your benefits as soon as possible. This will also ensure that you don’t use your savings first to cover expenses unless you absolutely have it. EI benefits may not be enough to cover your necessary expenses, but it certainly helps.
  1. Look for part time work
  • Depending on how you’re financial savings look like and what your future goals may be, it may be advantageous to look for part time work in any field to cover some necessary costs around the home. This becomes more important once your severance package/employment insurance runs out. If at this point you have not found work in your field of study, it is beneficial to take on any part time job to stay productive and bring in some income in the home. Looking for a part time job will afford you the time after work to send out resumes, cover letters and network with others to get another full time job (preferably in your field). As most of you know, with all the requirements needed from many employers and the distinctiveness that each job application requires, looking for a full time job can feel like a full time job. Finding a part time job may provide you with the flexibility of bringing in some income, while looking for work.
  1. Negotiate your severance package
  • If you are in a position to do so, negotiate your severance package so you can get the most out of your time and commitment to your employer. This may not be an option for many, but if it is for you, take advantage of it.
  1. Take money from savings. I don’t like the idea of taking money from my savings account to cover life’s unexpected expenses and circumstances, but sometimes we have to. This is where the emergency fund is so critical for us. We currently have $10,000 saved for emergencies which would cover us for about 5 months of bare minimum expenses/ living in Calgary Alberta. We also have $0 debt. The $10k is definetly not enough, but it’s a start and it will have to do for now as we grow our long term savings and invest. This money is in a basic savings account and GIC’s using the laddered GIC strategy.
  2. Incur low cost debt. I am not an advocate of debt (outside of investment debt) and would not advice anyone to get into consumer debt if I can help it, but there are instances in life where that may be an unavoidable truth. My  husband and I try and prepare ourselves financially to avoid consumer debt as much as possible. We have our $10k emergency fund + additional long term savings & investments, we try and carry a $0 balance of debt month to month. However, there are certain circumstances that even we could not withstand financially for an extended period of time including: long term sickness, long term unemployment for both of us (if one of us were unemployed we could get by, but if it was both of us, that would not be possible after a while) etc. At some point, we would need to tap into our $20k unsecured line of credit to get by. If you have to incur debt to get by financially, try to avoid using credit cards or pay them off with lower cost debt.

Categories: Budgeting, Debt

Tags: , , , , , , ,

13 replies

  1. Try to get ahead. When in work, keep costs low for a year. You must have a cushion. We advise £10k. Most people, when in work, start to splurge. It’s hard but a year lived frugally will impact the rest of your life.

    Once you have a cushion, look to offshore and diversify your currencies. You’re going to need it.

    Good currencies to hold are likely going to be: Norway, Swiss, Chile, Singapore.

    Liked by 1 person

    • Good advice. It’s important to still live like a student once you graduate from school and use that money to pay off student debt as well as save, save, save. One the reasons my husband and I are able to save so well is because we live modestly. Not like a student anymore, but within our means. This provides us with the opportunity to save and invest well while we are young and able to work.

      Like

  2. The one awesome thing that I did when I got laid off was negotiate my severance. They were offering about a month of pay, and I was able to get another two weeks. It wasn’t even particularly difficult. I just asked.

    Getting laid off was a blessing in disguise for my family. I was able to spend a lot of quality tiem with my daughter. We were always pretty frugal, so we were able to live comfortably with my wife’s salary and my unemployment. We just saved a little less during those few months.

    Fortunately, I was able to find a job pretty quickly.

    Liked by 1 person

  3. This is a topic which is near to my heart… Many thanks!
    Exactly where are your contact details though?

    Like

  4. These are all things that nobody wants to even think about. Great to have your bullet points, just in case! Thanks!

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  5. Very useful advice, just hope I will never need to use it!

    Liked by 1 person

  6. Excellent post. This can also be applied to once in a while even when one is still working. Just a bit of financial exercise that will strengthens one’s purse.

    Like

  7. This is a post that people need to print and save if this kind of “rainy day” occurs. When people lose their jobs, they often turn to spending money to feel better! Having a plan of action in place PRIOR to this kind of emergency just might save countless people years and years of heartache. Following your recommendations can help people find a road to recovery much faster without suffering significant losses.
    Excellent, excellent post!!!

    Like

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