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Positive Steps to Take After Losing a Job

Short-term measures can help get through the tough times


National Endowment for Financial Education

Losing your job through downsizing, corporate restructuring or workforce reduction can be one of the most traumatic events in your life.

An unexpected job loss may cause difficult financial and psychological repercussions not only for you, but also for your family and friends.

However, surviving your job loss—and even thriving from it—are possible.

Common Feelings After Job Loss

Losing your job can trigger a range of emotions— some of which may be uncomfortable or upsetting. Sometimes people ignore these feelings or try to hold them inside. Many times, people don’t realize that feelings of anger, disappointment, fear and frustration are common responses to being laid off or terminated. If you notice a tendency to “act out” with destructive behaviors such as drinking too much, lashing out at family members, or becoming short-tempered and irritable, you may need to seek professional counseling.

Job loss often triggers a loss of self-esteem. Some people find themselves fatigued and unable to accomplish anything during the day. These are all common responses to the loss of an important part of your life. For many people, their jobs provide structure and definition to their day. The loss of a job can be a devastating blow.

It’s important to recognize these feelings for what they are—responses to a difficult, stressful situation. You may be the sole provider for your family and you may worry about how your family will survive. You may have been living paycheck to paycheck and you don’t have an emergency savings account to get you through while you find another job. You may be fearful that you will never find another job at the same income level and with the same benefits. These are all normal responses to a job loss. Being aware of some of the financial and emotional responses that accompany job loss can help you to decide how you will proceed and recover.

'Closing Out' With Your Former Employer

The questions you need to ask your former employer will help you close out with the company while still retaining as much value from your benefits as possible. Depending on the size of the company, a human resources person may be available to help you with the questions you might have. Or you may need to talk to one of the principals of the company if you worked for a smaller firm that does not have a human resources department. If you were in a union, your union steward or union representative may help you. It is also possible to talk directly to administrators of benefit plans, such as the administrator of your 401(k) plan.

If you have a trusted financial advisor, you may want to consider providing that person with a limited power of attorney. The limited power of attorney will empower your financial advisor, or another person of your choosing, to ask questions of your former employer and gather the necessary information for you. No matter what your feelings are about your job loss, it can be important to get answers to questions you might have about your benefits. It is also important that you understand what options you have, such as converting a life insurance policy to a private policy (which must be done within 31 days).

Mistakes To Avoid

It is common in the first few days after a job loss to feel panic about how you will pay your bills and stay afloat. Some people will make some costly mistakes by acting from an attitude of panic rather than from the more reasoned approach they may gain as time passes.

Here are some financial actions you should avoid, if at all possible:

  • Using credit to purchase goods or services
  • Increasing your debt load
  • Borrowing money
  • Filing for bankruptcy
  • Cashing out your 401(k) retirement savings
  • Cashing out your pension plan
  • Making major decisions, such as selling a piece of property

If you are in the situation where you have no emergency funds to get you through the first month or two of unemployment, you may think you have to cash out your 401(k) or pension plan. However, this should be an option that you use only as a last resort. Cashing out your retirement plan not only depletes your current retirement savings, but it also means you will not receive the benefits of compounding interest on the money you must withdraw. You will also be liable for taxes on the money and often a 10% penalty fee.

If you roll over your 401(k) to another account from your former employer’s account, be mindful that there may be costs associated with this decision. Some insurance companies will charge you a surrender fee in connection with a retirement annuity that can be as high as 10%. Also, some mutual fund companies will impose a surrender charge (back-end load or sales charge) that can be as high as 8.5%.

What Are Some Things I Can Do?

From the list below, you may see possible solutions to short-term money problems. You may find it beneficial to follow up on the ideas that apply to your situation.

  • Get rid of any expense you can. (For example, maybe you’ll decide you don’t need cable television service. On the other hand, you may need Internet service to apply for jobs.)
  • If you own a home, you may be able to arrange for a forbearance agreement with your mortgage holders. (A forbearance agreement enables you to pay nothing on your mortgage or to make a partial payment for a set period of time. The difference is made up in the future when you can resume regular mortgage payments.)
  • If you are renting, consider moving to a less expensive place, moving in with a friend or getting a roommate.
  • Avoid scams. If something looks or sounds too good to be true, it probably is. Beware of work- at-home scams. Beware of “opportunities” that require purchasing front-end inventory or making a front-end investment.
  • Consider using employment agencies that place professional people in new positions without a fee.
  • If you have problems with credit, consult a nonprofit consumer credit counseling agency and seek assistance with debt consolidation or working with your creditors.
  • Look for free financial counseling services in your community.
  • Talk with your family and consider whether someone else in the household can help contribute to the household income by taking a part-time or full-time job. If your job provided benefits in the past, perhaps someone else could get benefits for your family through their company or through a new job.

Where Can I Get Help?

There are services available to help you when you experience an involuntary job loss. From supportive friends and family to various community and religious groups, help is available. Don’t try to go through this alone. Let others know what your needs are and what you are willing to do. The greatest asset you have is your own positive attitude and willingness to look at a variety of options. In addition to community and religious groups, the U.S. Government supports many programs that may help you—from job retraining and unemployment benefits to food stamps and affordable housing programs. Don’t be afraid to ask!

How Do I Find Good Financial Advice?

If you already have a trusted financial advisor, you will likely turn to that person for help through this period of transition. If you don’t have a financial advisor, you may want to consider finding free financial counseling through local community agencies.

Depending on your financial situation, you may have the option of meeting with a professional financial counselor for advice. Two methods for finding qualified financial counselors are (1) asking trusted friends or professionals, such as lawyers and accountants, for references, and (2) getting references from professional associations, such as the Financial Planning Association, National Association of Personal Financial Advisors or the American Institute of Certified Public Accountants.

Whether you are referred by an association or receive a recommendation from a friend or another trusted source, you must do your homework. An in-person interview with the financial advisor is the best way to learn answers to questions such as how the advisor earns money (commission or fee-based) or what qualifications the advisor has, and will help you decide your comfort level. You will also want to ask for references from professionals and clients with whom the financial advisor works.

How Do I Move Forward?

While each person experiences recovery from job loss in different ways, the list below offers some ideas to consider that may help you move forward.

  • Maintain a routine. Develop a schedule that works for your new circumstances and keep to it. A routine can help you stay focused on finding a new job. Resist the temptation to sleep late, watch television all day, or fritter time away on activities that won’t help your job search. It may help to think of your search for new employment as a full- or part-time job.
  • Take action. It may help to make a list of things you need to do to help you stay focused. Don’t try to do too much in one day—that can be self-defeating. Start with small steps. As you accomplish the tasks you’ve set out for yourself, your feelings of confidence are likely to increase.
  • Spend this precious time to reevaluate your goals and values. Remind yourself that the final outcome of this situation is up to you. You can make a decision that you’re going to transform this experience into an event that helps you achieve the goals you want.
  • Consider writing in a journal to help you think about your job loss and options for the future. Ask yourself questions in a positive framework, such as: How do I want to grow from this experience? What do I want to learn? What is it I want from my life? Try to write in your journal about 20 minutes, three times a week.
  • Stay on top of your finances. Know what your income and expenses are. Know what assets you have. Develop a financial plan to get yourself through the next several months. Your financial plan may reveal possibilities, rather than present restrictions.

This material is provided by SmartAboutMoney.org, a site from the National Endowment for Financial Education (NEFE) that helps people make sound decisions throughout all of life's financial challenges.

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