How to manage your finances if you lose your job

5 min read
Life Events

How to manage your finances if you lose your job.

Protect yourself and your assets with expert tips for managing your finances if you lose your job or see your income cut substantially.

Sometimes, life throws a curveball and up-ends our plans. In the Covid-19 recession, that’s more likely than normal, so we’ve pulled together a guide for what to do if you lose your job or see your income cut substantially.

We hope that as you read this, you’re reading it from the comfort of your own home with food in the fridge and a paycheck coming in. If that’s the case, fantastic! Hopefully this helps you develop a game plan for future disasters. If that’s not the case, we hope you can use this guide as a framework for how to get through a trying time. When you’re staring at lean times and need to keep yourself afloat, we want to help you do so with as little damage to your financial future as possible. 

First, stay positive.

Mindset isn’t everything, but it’s a lot. Your self-worth isn’t tied to any particular job and being caught in a layoff during a global pandemic isn’t a comment on your character or quality. The economy is riven with uncertainty right now, and forces outside of your control caused that to happen. 

There is reason for hope, however. This isn’t like 2008-2009 where the financial system collapsed on itself. The infrastructure of a strong economy is still there, we just can’t use it without risking enormous health costs. When the country reopens for business, many jobs will come back and new jobs will be created. It will just take time. 

The more you remind yourself that you can and will find work, the better you’ll be able to handle this. So stay positive, be cheesy, do whatever you have to do to deal with it because it will get better.

Check your cash outflow and negotiate.

Next, let’s keep more of what you have. Look at your monthly outflow, review your fixed expenses, and get on the phone. Your cable/internet company probably has a promotion, your mortgage might offer a program for you, and your insurance providers might offer temporary changes to your plan. Even your cell phone bill is fair game. There are even services out there that you can pay to negotiate lower bills for you as well. 

Many companies are undergoing a drastic reduction in demand for their products and services. Keep in mind that for the service provider, it’s always going to be cheaper for them to keep you as a customer than it will be for them to go out and acquire a new one to replace you, doubly so in the present climate. And it never hurts to ask. 

Borrow (the right way) before you liquidate.

Now don’t get us wrong, we’re not advocating for you to go out and run up your credit cards, but there are often opportunities to access cheap money that don’t involve liquidating your portfolio or withdrawing from your IRAs with penalties. For example:

401(k) loans

Most plans will allow you to borrow up to half of the employee contribution (the money you put in, not your match) to your 401(k) with a max of $50K paid out in a simple interest loan and usually for a pretty good rate. The repayment terms are generally something you can set and they’re handled via payroll deductions. The kicker is that this is only available to you WHILE you’re employed.

This would be a good solution if you have a two-income household and one of you is laid off and the other isn’t. The nice part about 401(k) loans is that there really isn’t an underwriting process and no credit check is done. That means that the funds are generally easy to get and the turnaround time is pretty quick, usually within a week or two. Another bonus is that you’re effectively borrowing from yourself and paying yourself back with interest. If you fit the circumstances and you need the funds, this is a good place to start.

Margin accounts and asset-backed lines of credit

If you have investments outside of your IRA/401(k) in individual, joint, or trust accounts, most brokerages will allow you to borrow money against those assets, using the individual securities (mutual funds, ETFs, stocks, bonds, etc.) as collateral. This will often be restricted to accounts of a certain size and often the brokerage will only permit you to borrow up to a certain percentage of a position’s value. If this is something you have access to, it’s a good option. 

Home Equity Lines of Credit (HELOCs)

HELOCs are simply lines of credit that you take out that are collateralized by the equity in your home. The pros of a HELOC are that right now, rates are historically low and the repayment is generally based on an interest-only schedule. This means that you can borrow what you need, but you’ll only have to repay the interest associated with the balance which will keep the payments much lower.

The cons are that you have to go through an underwriting process with your bank or financial institution. This means that you’ll have to be able to verify that you’re A) creditworthy, which means you’ll probably need to verify employment and your credit will have to be in decent shape, and B) that your house has enough equity to lend on. Your chosen institution’s turnaround may vary -- the process could take as few as 2 weeks or as many as 6 weeks. 

Balance transfers or 0% intro rates on credit cards

This is the lowest on the totem pole of recommendations, but if push comes to shove, it’s an option. Offers like this exist for as much as 21 months for those who qualify. Again, it’s still a credit application and you’ll have to be approved, but if you don’t have a 401(k) to access or a home to borrow against, this can still be an option.

Apply for your unemployment benefits ASAP 

Unemployment insurance from your state and extra help from the federal government is meant for exactly these situations. It goes without saying when dealing with bureaucracy, but you’ll have to be patient as most of these systems are not equipped to handle the volume they’re currently seeing from new applicants right now. It’s going to take time and patience to navigate these systems, but make sure you get started immediately if it comes to it. Any money coming in is better than no money at all.

Closing thoughts

Hopefully, these suggestions provide you with a framework for navigating crisis and provide options that don’t derail your long-term goals. Ultimately, if you need to pull from retirement accounts because you have no other option, that’s what you need to do. Desperate times can call for desperate measures.

It’ll take some time, but we’ll get through this and, as always, if you want specific guidance, reach out to us, and we can review your options.

Good luck, and stay safe.

Ryan Koenig

Principal Advisor @ Farther

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