How to get your financial act together after losing a job
The shock and, sometimes even trauma, of losing your job can be a blow to your ego, your confidence, and more often than not, your wallet.
Unless you are a consummate saver the first thought going through your head might be, “I’m afraid I’ll become a bag lady.” Kathy Murphy, Principal of the Toronto bookkeeping, payroll and HR company ‘Starting at Nine’, says that you must move fast to suspend all discretionary spending. Let’s look at a case study to illustrate the point.
Example: You are making $40,000 a year. You lose your job and receive 6 weeks’ severance, one week per year of service or if lucky, 2 weeks per year of service (managers and more senior workers might get 3-4 weeks per year of service). Your take home pay is about $2500.00 per month, so your severance is about $3000.00. Your rent is $1000.00 per month with utilities and cell phone. You hardly have any savings except for a few dollars in an RRSP.
If you pay two months’ rent, $2000.00, you have close to $1000.00 left to last till you find your next job. Employment Insurance doesn’t kick in until 2 weeks after your severance is over. In week 9 you may receive a check from EI for about $450.00.
How do you cope and how do you prevent this financial nightmare from happening again.
Fighting your severance offer can result in months without any money at all. Check with a lawyer or savvy HR person to get an opinion on whether asking for more severence is worthwhile.
Kathy Murphy purports you get a handle on what income you will have available to you while you job search and what your expenses are. Immediately stop unnecessary spending. Evaluate your bank balance, assess your expenses, charge cards, utilities, etc. Ascertain what you can eliminate and what you can cut back on.
- eliminate big cable packages but keep basic cable as your future entertainment may be your TV for awhile
- get Netflix
- walk more
- drive less, find discount gas bars
- no mani-pedis
- drinks with friends at home rather than in expensive lounges and restaurants
- meal plan and shop end of the day or week when more food is discounted
- get haircuts at beauty schools and color and highlight your own hair
- daily gourmet coffees are now a weekly luxury
- travel around town with your own bottle of water and tea or coffee from home
- sell books/furniture/clothing
- make home made wine and beer
- don’t offer to ‘get the next round’
Rent is your largest expense. How long can you afford to pay the rent? Consider getting a roommate, moving in with friends, subletting, or maybe moving back in with the parents. If you have an extra room consider getting a foreign student, agencies pay $750.00 a month to house a foreign student – you provide dinner and breakfast. Worse case scenario is to break your lease.
If you have a mortgage, go to your bank and explain your situation. Some banks will give you a 3-6 month grace period on paying your mortgage.
Start paying only the minimum on your credit card balance.
- you do not need any new clothes or shoes
- maintain and use your fitness membership but downgrade the perks
- sell old and broken gold and silver jewellery
- have a yard sale
- sell books, clothing and furniture online or to retailers who sell gently used items
Theoretically you are employed for six more weeks, check to see if you can get a line of credit.
You will never want to be caught unawares ever again so now is the time to get smart. Go on the internet or talk to a bookkeeper for a format to use to set up a cash flow analysis. Murphy says these are easy to do, and once you get in the habit of working with it you will find out where you are making your mistakes and where you are overspending.
Make a budget a budget. Start with this month. List your current balance, add any expected income for the month like the $3000.00 severance and any holiday pay. List your expenses and subtract. In black and white you will see exactly what you have to work with over the next month and yearly. An online program will even calculate when you can justify buying a new car, or take a vacation or when you will go broke.
Bottom line, if you have just lost your job, act fast to get your ducks in line. For the future, make a rainy day plan by setting aside some percentage of your next job’s pay check so there is breathing room for the next unexpected event.
Colleen Clarke, Career Specialist & Corporate Trainer
Author of Networking How to Build Relationships That Count, How to Get a Job and Keep It
Co-author of The Power of Mentorship; The Mastermind Group