6 Steps to Take When You’re About to Get Laid Off

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Updated on Wednesday, June 1, 2016

6 Steps to Take When You’re About to Get Laid Off

About four years ago, one of the very first companies I worked for out of college was bought out by two of its biggest competitors resulting in job insecurity for many of the employees. I’ll never forget the day we got the news.

One morning, an email for an emergency telecall was sent out to everyone. We all gathered around to listen on speakerphone as an executive explained that our competitors acquired our company. At the end of the brief call, he finished with something like “good luck to everyone”.

It sent shock waves through upper management. Little by little representatives of the new companies began restructuring. The bright side of the situation was that we all got a decent amount of time to decide if we wanted to be a sitting duck or if we wanted to proactively look for a new job.

Find yourself in a similar position? Here are a few tips:

1. Get a Headstart on the Job Hunt

My counterparts told me the low-level management position I held was fairly safe. That didn’t stop me from sending out some resumes anyway. If I had to leave the company, I wanted to do it on my terms. I landed an interview and a new job shortly after we listened in on that shocking telecall announcement.

At the end of the day, it’s easier to look for a job while you have a job. You don’t have to explain gaps in employment. Collecting unemployment is also something to consider if you simply can’t find a job before your position is made redundant.

2. Downsize, Downsize, Downsize

Downsize your lifestyle wherever you can as soon as you get the feeling your job is on the chopping block. Tiffany “The Budgetnista” Aliche, financial educator and speaker, rented out her home to pay the mortgage when she was laid off from her position.

She moved in with family during this time to make ends meet. She also cut out all non-necessities like eating out and her gym membership. Review your budget carefully to remove all expenses that you can survive without. Make the serious budget cuts now so you won’t have to scramble to pay bills later when layoffs happen.

3. Use Your Discretionary Income Wisely

While still making a steady income, beef up your emergency savings with the excess money you can squeeze out of your budget. Prepaying bills is another way to put your discretionary income to use while still employed in order to ease the financial burden later on.

Sandy Smith of Yes, I Am Cheap had notice before leaving her job and prepared for it well in advance. She prepaid three months of her car note and two months of her mortgage to avoid feeling the pinch when she was out of a job.

4. Bring in Income from Other Sources

Even though you may not find a new permanent position quickly you can still earn income in other ways. Sandy ended up staying home for 6 months and fell back on various side hustles to bridge the income gap. She continues to chronicle her adventures in side hustling on her blog. According to Sandy, everyone has a talent that they can make money from.

Tap into skills and education that you already use professionally. There are also many legitimate side jobs you can do online like selling on Amazon, freelancing or virtual assisting.

5. Take Advantage of Your Health Insurance While it Lasts

Sherrian Crumbley of KNS Financial recommends getting last minute physicals and dental visits in while you can. Then, she suggests pricing out COBRA and individual health insurance to see which one will benefit you more after you’re laid off.

For a quick overview, under the Consolidated Omnibus Budget Reconciliation Act or COBRA for short, employees that experience a serious life event (like getting laid off) can get a continuation of coverage under an employer’s group plan for a limited amount of time.

While using COBRA, the full cost of coverage may get passed on to you by the employer plus administration costs. This may not be the most affordable option. Check out the health insurance marketplace to compare costs. And keep in mind, going without health insurance altogether while jobless can result in tax penalties.

6. Rollover Your 401(k)

What should you do with your 401(k) when leaving the company? First, check how much you have vested in your 401(k) balance. Your vested balance is the percentage that you can take when leaving a company depending on the terms of your employee match.

One popular option is rolling over your 401(k) balance to another tax-deferred account like an IRA. You can do this easily by opening an IRA account and requesting a transfer of your 401(k) balance directly to the new IRA.

Whether or not you should cash out your 401(k) to pay the bills while you’re out of work is another story. Taking money from your 401(k) before you hit retirement age has tax implications that you may regret later.

For instance, Tiffany took out money from her 401(k) as a last resort during unemployment and was hit with a sizeable tax bill and withdrawal fees which she now believes was a mistake. Rhonda J. Williams, speaker, financial coach and founder of Exodus Financial Education Group, experienced a layoff in the past as well and withdrew from an account she had been investing in for 15 years.

According to Rhonda, “[now] it would be close to impossible to make up the time and compounding interest I lost.” After recovering from these experiences, both Tiffany and Rhonda now run successful businesses providing financial education to others in need.

If you have no savings and you’re about to get laid off, dipping into your 401(k) could be a last resort. Before that, you may want to consider other resources for money first like a low-interest personal loan.

Final Word

You’re not alone. Going through the fear of job cuts and becoming unemployed can feel like an isolating experience. Yet, it’s an experience that many of us go through.

The benefit of hearing whispers about layoffs around the water cooler is that you can prepare in advance. At a bare minimum, reel in your spending and hunt for jobs to make sure you don’t have the wind knocked out of you when your position is eliminated.