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Updated on Thursday, January 11, 2018
Paul Catala, a 53-year-old entertainment reporter in Lakeland, Fla., knows firsthand about the struggles of unemployment. He was the victim of massive layoffs at a Tampa-area newspaper in December 2012. The result? A severance package of about $1,500.
“I was pretty much financially panicked,” Catala told MagnifyMoney, who also lost his health insurance. “All I had was my severance and nothing more than a couple thousand dollars in savings.”
As a single guy, he didn’t have a spouse’s salary to fall back on, but he made it work. During the year and a half that followed, he patched together a steady income by picking up a string of odd jobs and side gigs (more on this in a bit) before eventually securing a full-time job.
In 2017 alone, at least 255,000 planned job cuts have been announced, according to a report put out by the firm Challenger, Gray & Christmas. (The bright spot, however, is that the report also found that job cuts are on the decline.)
If you’re newly unemployed and not sure how to move forward, this ultimate layoff survival kit is for you. Here’s everything you need to know about weathering the storm.
What to do when you lose your job
Step one: Don’t freak out
If the financial implications and the stress of having to find a new job have your head spinning, you’re not alone. The longer you’re unemployed, the more likely it is to take a toll on your psychological well-being. According to a 2013 Gallup survey, roughly 20 percent of Americans who’ve been unemployed for a year or more have been affected by depression.
But while it’s certainly wise to make a plan, don’t take such a long view that you’re overwhelmed by the enormity of unemployment. As the old saying goes: “Inch by inch, life’s a cinch. Yard by yard, life’s hard.”
Do one thing at a time to avoid “analysis paralysis” (aka feeling so overwhelmed that you take no action at all).
Step two: Exit your current job with grace
Getting laid off hurts, but think twice before storming out in a blaze of glory.
“Anything you can do to leave on a good note is a good idea,” career coach Angela Copeland tells MagnifyMoney. “Thank-you notes and goodbye lunches all help to give positive closure.”
The last thing you want to do is burn bridges on your way out. When applying for new jobs, Copeland says you’ll be asked for references the hiring manager can call, which will likely include your previous employer. It’s in your best interest to keep these relationships positive.
Negotiating your severance package before hitting the road may also be on your to-do list.
“Some people have been able to negotiate an extra month of severance because they’ve been there longer and can quantify what they’ve brought to the job,” said Shannah Compton Game, certified financial planner and host of the “Millennial Money” podcast.
“Try and correlate it to something positive, like revenue or growth you’ve been able to do for the company,” she said. “Keep good records of the successes you’ve had because you just never know when you’ll be able to use that.”
On a similar note, you might be able to use rumors of impending layoffs to your advantage. Game says that it’s usually the people in the early rounds of layoffs who get the better severance packages. If you’re likely to be on the chopping block, volunteering to be let go sooner rather than later could be used as a bargaining chip to secure a better severance package.
Step three: Get your finances in order
Before you panic, sit down and do a thorough audit of your financial situation. List all your monthly expenses, from fixed costs like rent and utilities to discretionary spending like entertainment costs. Then factor in any income you still have, like unemployment benefits (we’ll dive into how to apply in a minute), a severance package, and any cash you have coming from side gigs or passive income streams.
Now for the obvious question: What does your savings account look like?
“The goal marker is to have three to six months’ worth of fixed expenses saved in your emergency fund,” said Game.
To help curb temptation, she recommends parking it in an interest-bearing savings account that’s separate from your regular bank. (We’ve rounded up some of the best online savings accounts currently available here.) If you’ve got an emergency fund, getting laid off is as good a time as any to dip into it — that’s what it’s there for. Of course, the idea is to make your savings last as long as possible. This is why Game suggests retooling your budget right out the gate.
“Is there anything in there you can cut, or at least make better?” she asked. “Can you negotiate a better cellphone or internet plan? Are you overpaying in some areas? When you’re unemployed, every dollar helps.”
Another thing to think about is your 401(k). Getting laid off makes you ineligible to take out a 401(k) loan, according to Game, but you can withdraw from it — for a hefty price.
“If you pull out of your 401(k) and you’re under 59½, you’ll have a 10-percent penalty, plus whatever you take out is added to your taxable income, so it could shock people if they took out a sizeable amount,” warned Game, who also recognizes that sometimes you don’t have any other choice.
Tapping your nest egg should be an absolute last resort. If it comes to that, Roth IRAs are a little more appealing because you can pull out your contributions at any time without tax or penalty (It’s just the appreciation you can’t touch until you’re over 59½). If you’re financially stuck between a rock and a hard place, a Roth IRA could serve as an extra backup emergency fund.
As for a 401(k) from your old job, Game says you have a couple of options. Some companies will let you do a direct rollover, which is a hands-off option that’s way easier than rolling it over yourself. This way, you won’t get a check for that cash.
“If you do, you have to have it deposited into your new account in a short time period so you don’t get taxed on that amount, which is why it’s better to do these things electronically whenever possible,” said Game.
No emergency fund or Roth IRA to tap into? You’re not out of options. Read on for more ways to access cash during unemployment.
Step four: Rev up your job hunting efforts
“One of the biggest mistakes I see from people who’ve been recently laid off is that the experience is so stressful that they want to take a break,” said Copeland. “They think, ‘I need a few months to take some time for myself.’ What they don’t understand is that the longer you wait, the harder it becomes.”
Begin by dusting off your resume and updating it with any relevant new skills, accomplishments, and/or trainings you’ve completed. Do the same for your LinkedIn profile, which includes adding keywords that potential employers may be searching for (To get an idea of what these are, Copeland suggests browsing job postings you’re interested in). You’ll also want to follow companies on LinkedIn and connect with influencers within those organizations.
When it comes to references, Copeland adds that asking folks to leave you a written, public recommendation on LinkedIn can do wonders. Future employers are going to be looking at your profile. Seeing that people you’ve worked with have positive things to say is going to make them much less suspicious that something negative happened at your old job.
One other thing: Fine tune your elevator pitch so you’re ready to comfortably, and confidently, talk about yourself at a moment’s notice. After that, step away from your computer and get yourself out there (literally).
“A lot of people are told to apply online — ‘If you’re a good fit, we’ll call you ‘— but very rarely is that true,” said Copeland.
“It’s one-on-one personal connections that are going to help you find a job, and those people will be most helpful and empathetic very soon after you’ve been laid off.”
Let your network know you’re actively looking for work, attend industry events, and reach out to people for informational interviews. In some cases, this might mean cold emailing a colleague of a colleague and asking to pick their brain over coffee. They could always say no, or even ignore you, but Copeland says that when up against unemployment, this isn’t the worst thing in the world.
Step five: Protect yourself against the worst-case scenario
If your job hunt stretches past the one-month mark, you could end up draining your emergency fund faster than anticipated. According to the U.S. Department of Labor, the number of long-term unemployed workers (i.e. people who’ve been out of work for at least 27 weeks) held steady at 1.5 million as of December 2017. This makes up 22.9 percent of the unemployed.
If you find yourself in this boat, you’ll need to go beyond cutting cable and scaling back your entertainment budget to make ends meet.
“Can you call your student loan servicer and defer your loans for a few months?” suggested Game. “Remember, you’ll still be accruing interest when you do this, but it might help you out for a few months.”
Looking for other high-impact ways to free up cash? Game also suggests considering:
- Taking on a roommate or renting out a room on Airbnb.
- Getting a part-time job.
- Taking out a short-term loan from a family member.
- Using balance transfer offers to lower your credit card interest rates by moving debt to a 0% APR card.
- Researching a personal loan. Going into debt is never advised, but if your situation’s getting dire, it may be your best worst option (It’s sure better than getting evicted or defaulting on your car payment).
This is precisely why Game says it’s so important to get your financial house in order while your career is going well. Flash forward to being laid off: Having a solid credit score is what’s going to enable you to get your best rate on a personal loan. The same goes for locking down a low-interest credit card, if it comes to that.
4 tips to help stretch your finances when you’re unemployed
How to apply for unemployment
Taking advantage of unemployment insurance can help stretch your savings and soften the financial blow of a layoff. Whether you qualify depends on a number of factors, one of the top ones being where you live; every state is different.
As long as you’re looking for work — and meet the qualifying criteria below — most states allow participants to collect benefits for up to 26 weeks (about six months). Just keep in mind that a severance package could impact how much you qualify for, depending on the state you live in.
- Losing your job was out of your control: Being laid off generally ticks this box, but if you were fired or quit voluntarily, you’ll be ineligible.
- You worked long enough and earned enough wages to qualify in your state: Every state’s threshold is different, but applicants must meet requirements for wages earned or time worked during an established time period in order to collect unemployment. You can research your state’s rules here.
- You were laid off from a W2 job: In other words, you weren’t a freelancer or independent contractor. Since employers don’t pay unemployment taxes for these folks, benefits are typically off the table.
That said, there isn’t a one-size-fits-all answer when it comes to how much money you’ll actually get. What you were earning, where you live, and whether or not you received a severance package may all come into play. Your best bet is to contact your state unemployment office to start untangling the details.
How to apply for food stamps
Applying for the Supplemental Nutrition Assistance Program (SNAP), aka food stamps, is also a state-specific process. In order to qualify, you must meet resource and income requirements (SNAP provides this handy pre-screening eligibility tool to help clarify whether or not you qualify). Eligibility varies from state to state but is largely determined by your:
- Resources: Things like bank accounts and vehicles fall into this camp. Some resources are generally off limits, like retirement plans and your home.
- Income: You have to meet the income requirements outlined here. Some exceptions — like having an elderly or disabled person in your household, for example — may make it easier to qualify. Just keep in mind that any unemployment benefits you’re collecting will be factored in here.
- Employment status: If you’ve been recently laid off, this one’s a biggie since SNAP eligibility is hinged, in part, on meeting work requirements. They include:
- Registering for work
- Not voluntarily quitting a job or reducing your hours
- Taking a job if one is offered
- Participating in your state’s employment training programs
- If you’re an able-bodied adult without kids, you’ll also be required to either work or participate in a work program for a minimum of 20 hours per week to receive SNAP benefits for longer than three months in a 36-month period.
Ready to apply? Find your state here to get the ball rolling.
How to get help with a job search
There are a number of federal government programs in place to help see you through a stint of unemployment. CareerOneStop (backed by the U.S. Department of Labor) is packed with free job search assistance and training resources. Here you’ll find everything from job openings and resume guides to salary data and interview and negotiation tips.
COBRA might also make sense for newly unemployed folks. The program allows you to keep your employer-sponsored health plan after getting laid off. Before pulling the trigger on enrolling in a new health plan, be sure to check if COBRA makes sense for your health care needs and budget.
Pick up part-time work
Another way to unlock cash is to think of out-of-the-box ways to make money. Before Catala secured a new full-time job, he picked up a ton of side hustles to fill in the missing income. This included everything from tutoring at a local community college to cutting lawns to booking music gigs (He happens to be a pianist.). The takeaway? Look beyond your 9-to-5 skill set to pay your bills.
“At one point, I was doing like five different things and just making money,” said Catala, who earned too much from the gigs to collect unemployment.
“If you’re creative and willing to hustle, you’ll be fine. Even if it’s just $50 a week, that’s better than nothing.”