The first step towards financial organization is to plan for the immediate. File for help (short-term). This means going to your local unemployment office to file for unemployment benefits. Sometimes, this can also be performed online, but before filing, be sure to have a statement on company letterhead with the following information which will be used by the unemployment office for verification purposes: company name, dates of employment, reason for termination, salary. You may also need to have the other documents available in case requested by the unemployment office: copies of pay checks, previous year’s tax information, family information and social security numbers. The family social security numbers are important (along with birthdates) as some unemployment offices may be able to secure your children with a low-cost or free health insurance plan offered by the state; since household income has been drastically reduced. If another spouse is employed, you may need his/her copies of wages to prove household income. Be sure to view your region’s unemployment website for document requirements.
The next step after filing for immediate help is to plan for the road ahead. This means filing for help (long-term). If previously working in an industry with little job prospects, or if needing to relocate to a new town, consider filing for a hardship withdrawal from your 401k. This is to be used as a last-resort, but can be used as an option to transition or retrain for another career, or fund a move to another city if offered a new job. Some other retirement plans allow money to be taken out all at once (if no longer working with company) but you must pay income taxes on these monies. While the money is taxable, be sure to investigate other tax credits like the Lifetime Learning Credit or Hope education credit if retraining for another career. Also, since there is a loss of income, taxes should not be very high since you may be in a lower tax bracket than the previous year.
For people who are given company help, it may be time to investigate and utilize the severance package. If offered a severance package, be sure to maximize the package including any educational or insurance benefits. Transfer all monies to a high-yield savings account to generate extra income and consolidate credit cards to card with zero-percent interest rate or lowest interest rate. The goal here is to maximize severance pay and make it last as long as possible, as this will prevent a costly 401k withdrawal. Severance pay must be reported on income taxes, but utilize credits for educational expenses on your taxes.
No matter which option you choose, it is time to reduce. As mentioned above, try to reduce family expenses by seeking discounted children’s health insurance. Also, if there are any pre-school or younger aged children in your household, apply for WIC. If approved, this will help save on the grocery bill and ensure your children are able to have a warm meal. For adults, insurance may have to wait until your next job, but there are costly options available like COBRA, individual health plans with insurers or temporary health insurance for those that desire health insurance. For those without insurance, seek-out pharmacies with $4 generic drug prescriptions and acute care clinics over the more costly brand-name and emergency-room or family-physician office visits. Check with your bank about setting up a separate savings account to keep emergency money in for healthcare, car emergencies, and home repairs. Shift the money and forget about it until needed for that purpose.
Finally, take an inventory. Does the amount of money that you have now, or are able to get account for at least eight months of bare-minimum living expenses? If not, plan now and inventory all bank accounts/investments for what you can sell or invest (FDIC or NCUA insured only) at a higher rate. Also, look around the house. Is there anything that can be sold to generate extra income (extra car, a boat, yard sale items)? If so, don’t wait until the last minute. The sooner you act, the money will be available to invest in that high-yield savings account. Other possible sources of short-term income until a new job arrives are substitute teaching, babysitting/ in-home childcare, landscaping, paper routes and seasonal jobs in the retail/hospitality industries.
