Tuesday, July 7, 2009

Preparing for Job Loss

As unemployment in many states climb into double digits, preparing for a possible job loss is on many people’s minds. While a layoff is beyond the control of most people, there are many things that you can do to prepare for the possibility.

An important point is that the earlier you start preparing, the more prepared you will be when and if your layoff comes. Even if you believe that your job is well protected, getting your financial life in order will benefit you, even if you never face a job loss.

The best way to start preparing for financial hardship is to get out of debt. By eliminating your monthly payments, you free your money for other things. Whether your goal is creating a nest egg for an emergency or buying a new house or car, it will be easier to accomplish if you have fewer monthly bills.

Consumer guru Dave Ramsey (www.daveramsey.com) has developed a successful seven-step program to pay off your debts and start building wealth. Unlike many programs, this one costs nothing and is simple to implement. If your layoff is not looming near, this is a great place to start.

If your layoff is imminent, contrary to Dave Ramsey’s advice, my recommendation would be to start stockpiling money. I was laid off (furloughed in airline parlance) in 2005 shortly after I had started taking some of Dave Ramsey’s advice. My debt was reduced to about $1000 when the paychecks stopped coming. At that point, my debt started increasing again because I had little or no money in the bank.

Don’t wait until the last minute to start looking for a new job. A good time to update your resume is before you need it. If you don’t have a resume, start one. You can find simple guides both online (such as http://www.resume-help.org/resume_writing_tips.htm) and in books. If writing your own resume is intimidating, there are many services that will write them for you.

If you believe that you are about to lose your job, start sending out your resumes immediately. Use classified ad sites on the internet and your local newspapers to target your search. Yahoo jobs and monster.com are two popular job search sites. There are also specialty sites for many job fields and geographic areas. Networking with people you know may also lead to possible jobs.

In today’s job market, don’t focus on a job like your old one. Examine your skills and experience and apply for every job for which you qualify. Consider a career change. Even retail or part-time employment can help to pay your remaining bills. Take care that part-time jobs do not conflict with your unemployment payments.

Before you leave your old job, you should also ask your friends and coworkers to provide you with reference letters and referrals. References from your most recent job are more valuable than older ones. An important point to remember is that you should always ask before using anyone as a reference. Make sure that they remember you and have something positive to say about you.

If you are about to be laid off, do not try to maintain your current standard of living. You must immediately set priorities to conserve your cash. Your priorities should be to maintain your home, feed your family, and to find a new job. This means that you should concentrate on paying your mortgage, electricity, heating fuel, and water bills above all else.

Credit cards and unsecured debt are low priority. Failure to pay a credit card will not result in foreclosure, repossession, or loss of electricity or water. The credit card companies can do little more than harass you or cut off your lines of credit, which you shouldn’t be using at this point anyway.

Don’t just abruptly stop making payments though. Talk to your creditors and explain your situation to them. They may be more understanding if you work with them from the beginning. Explain to them that you will pay them back when you are able, but that without a job, you cannot pay.

The Fair Debt Collection Practices Act limits the actions that debt collectors may take. They are not allowed to harass or threaten you. To find out what debt collectors can and cannot do, check with your state consumer protection agency or visit this link:

Eliminate any payments that are not necessary. Some examples of nonessential spending are cable television, eating out, trendy clothing, and anything that will not help you find a job or contribute to your basic survival. If you have expensive car loans, you may need to consider selling the vehicle and buying an older car that you can pay cash for. This may also allow you to reduce your insurance coverage. You may also be able to reduce your cell phone plan to a more basic service that eliminates texting and other services.

If you have toys, such as boats, motorcycles, or recreational vehicles, consider selling them. You may be able to generate enough money to pay your bills for a few months. If these items are not fully paid for, they should definitely be placed on the market since the loan payments will constitute an unacceptable drain on your cash reserves.

When you do lose your job, do not waste any time in applying for whatever assistance that you can qualify for. This may include unemployment compensation payments, health benefits, food stamps, women-infant-children (WIC) vouchers, and occupational training. Benefits vary by state. Check with your local state offices and apply for everything.

In some cases, you may be required to cash out of your retirement plans and investments before qualifying for assistance. My recommendation is not to do this unless absolutely necessary due to the heavy penalties involved in withdrawing money from 401k or IRA plans. Additionally, if you sell your stocks now, you will probably be selling for far less than the purchase price of your stock. Normally this would result in a tax write-off, but without income the write-off would be worthless. The bottom line is that if you need the money, withdraw it and take the penalty.

Many employees will qualify for COBRA rights under their health care plan. Under COBRA, you can continue your employee health plan for up to 18 months. The problem is that under COBRA, you must pay the entire cost of the plan plus a 2% administrative fee. Since most employers pay a portion of health insurance premiums while you are employed, the total cost of your health insurance will likely be more expensive that what you paid in the past. Through the end of 2009, there is a federal subsidy of 65% of the COBRA premium.

When deciding whether to purchase insurance under COBRA, consider several factors. First, if you have a pre-existing condition, you should probably purchase the COBRA insurance. Pre-existing conditions may make it difficult to obtain individual health plans.

Second, contact local health insurance agents to obtain a quote for health insurance. Don’t try to replicate your employer-paid group plan. Look for a simple major medical plan with a deductible that is as high as you can afford. If you have prescriptions that you must take, do look at the prescription coverage or shop around for a separate prescription discount card.

A final, but not trivial, consideration is maintaining the will to survive. Anticipate the fear and depression that you will face in the coming months. Try to stay positive. Do not try to carry the whole load yourself. Rely on your friends and family. Military survival manuals stress the need to use the buddy system to prevent panic and capitalize on group strength.

The military survival manuals also suggest spiritual avenues toward maintaining your mental strength and will to survive. Pray and remember the times that God has helped you overcome adversity in the past. Seek fellowship in a local church. Attending services, singing, and talking to people can help to boost your morale. Above all, trust God and your family to help see you through the crisis.

Remember that the financial crisis is not permanent, either for the United States or your family. Better times will return. Your most immediate job is to preserve your family and as much as possible of what you have worked for until that day comes.

Air Land Sea Application Center, Survival, Evasion, and Recovery, US Government, June 1999, Appendix A

1 comment:

Anonymous said...

I was searching for some reference about this particular topic, glad that I found your article in google. Great insight.

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