The Best Money Moves to Make After a Layoff

Almost 2 million people in the U.S. get the bad news every month: they have been laid off. Whether they are retail clerks or rocket scientists, their bosses have decided that the enterprises will be more efficient without them.

Being on the receiving end of a pink slip is, naturally, stressful. Paychecks stop coming and each month a new crop of jobless bankers, chocolate makers and other redundant workers scramble to support themselves and their families until they can line up a new position.

They all know instinctively that being smart with money is vital after a layoff, but they do not all know the best moves to make. Here are the fundamentals from Next Avenue.

1. Secure health care coverage. Maintaining health care for you and your family is an important financial task. So don't delay.

"Assess your health care options immediately," says Sean Lovison, a certified financial planner at Purpose Built Financial Services in Moorestown, New Jersey.

"If your former employer-provided health insurance, consider (paying for) COBRA to continue your current coverage, although this can be expensive," he adds, "or explore the marketplace for alternatives. (Affordable Care Act coverage could be a more affordable option.)

"Health care expenses can be significant and ensuring coverage is critical."

One good option may be to change over to a spouse's health plan.

"If you are married and your spouse has access to employee health benefits, look at switching to your spouse's benefits rather than utilize COBRA," says Patrick Whalen, a certified financial planner at Whalen Financial Planning in Los Angeles. "COBRA can be expensive."

2. Make the most of severance packages. If your erstwhile employer gave four or six weeks or more of severance pay, be shrewd in saving and sparing in spending.

"If you receive severance, set that money aside in a high-yield savings account (where your emergency fund is located, if you have one)," says Kiersten Peshek, a Certified Financial Planner at Citrine Capital in San Francisco. "Draw from the account on a monthly, semimonthly or biweekly basis (like a paycheck) in the amount that will cover your typical monthly expenses."

3. Apply for unemployment benefits. This insurance, which you paid for via payroll deduction, is available at the state level. It is important to check if you qualify. Unemployment benefits could be the monthly infusion of cash you need to get you through your job search.

"File for unemployment right away so you can start receiving benefits to help with your cash flow," says Carla Adams, a Certified Financial Planner at Ametrine Wealth in Lake Orion, Michigan.

"If you receive severance, check to see if your state unemployment office will still pay unemployment benefits. Some states do and some do not," she says.

4. Re-evaluate your budget. With your old source of income gone, it is time to reassess your budget.

"Go through your budget, latest credit card bills and/or bank account statements and find areas where you can cut back," Adams says. "Remember, this is just temporary, but go as lean as you can. Great places to potentially cut back include unnecessary monthly subscriptions, meals out and vacations that can be readily canceled."

5. Don't touch retirement savings. Traditional IRAs, as well as 401(k)s, 403(b)s and most other tax-advantaged retirement-savings plans come with penalties for early withdrawals and it is best to leave them alone so they can continue accumulating wealth for your retirement.

"Avoid tapping into your retirement accounts, if at all possible," Adams says.

6. Pursue new revenue streams. Getting a new full-time job may take some time. While you search, why not take on a part-time job? The income will help with your cash flow.

"While your No. 1 priority of course is to find a new job, if you are able to find additional income streams without interfering with your job search, be sure to take advantage of opportunities such as becoming an Uber driver, DoorDash delivery driver, et cetera," Adams says.

7. Exercise company stock options. If your former employer gave you stock options in the company, don't forget about them. You only have a short time to exercise them or risk forfeiting them.

"In the tech world, company equity is common so take a look at how much time is left for you to act on that equity," Peshek says. "For example, if you have Incentive Stock Options (ISOs), those typically must be exercised within 90 days of termination or a layoff or they are forfeited. Sometimes this can be as short as 30 days. So double check and make a plan if you want to keep that equity."

8. Stay in touch with HR at your old company. People in that department may be able to assist with handling your company benefits.

"Get the contact information for HR," says Bradley Hilton, a Certified Financial Planner at Sonas Financial Planning in Atlanta."These folks will be key to helping you with post-employment details like health insurance, retirement accounts, documents, noncompetes, et cetera."

9. Eliminate optional spending. While searching for a new full-time job, avoid big purchases. They can wait until you're hired again.

"We recommend avoiding any big-ticket purchases until you secure a new paying position, and holding off on any financial decisions that would insert large fixed costs into your monthly budget," says Eric Roberge, a Certified Financial Planner and founder of Beyond Your Hammock in Boston.

10. Tap into emergency savings. If you have tucked away several months of living expenses in an emergency fund, now is the time to tap that resource and spend it judiciously.

"If you've been good and built an emergency fund . . . now's the time to rely on it," Hilton says. "That's what it's there for."