Career Planning With a Financial Airbag
How to Protect Personal Finances From a Job Layoff
Aug 22, 2009
Although most workers cannot guarantee themselves perpetual employment, there are steps they can take to soften the blow of an unanticipated (or anticipated) job loss. Whether the economy is booming or unemployment is on the rise, it never hurts to have a backup plan.
The ABC’s of Career Transition
Rather than wait for a job loss to come as a surprise, workers can plan for it in the same way one might prepare for a medical emergency. While no one usually wants to lose a job, downsizing, termination, and bankrupt businesses are part of reality. Preparation begins with asking the question, “What should I do first, if I lost my job today?”
Adopting a triage approach similar to one used by medical personnel can be helpful. When a person stops breathing or his heart stops, medical professionals at the Mayo Clinic refer to the ABC’s of cardiopulmonary resuscitation (CPR) to address the patient’s critical needs: establishing an Airway, assistance with Breathing, and reestablishing Circulation.
In a similar fashion, the subject of a job termination can apply the ABC’s of career transition to keep their finances alive and healthy after suffering a traumatic job termination. In this case, the “A” stands for Attitude. The “B” stands for Bills, and the “C” stands for Cash flow.
Keeping a Positive Attitude
Just as a clear airway is the immediate need for someone who has stopped breathing, maintaining an unobstructed positive attitude can be critical for the financial recovery of someone who has lost a job. Having sufficient emergency cash set aside for such an event can do wonders for anyone’s attitude. Many financial planners recommend keeping three to six month’s worth of critical expenses in a savings or money market account for this purpose.
Paying Bills
Keeping the credit score intact after being laid off can also be a challenge. Before the emergency funds run low, it is important to contact creditors before missing payment due dates. In some cases, if the creditor is aware of the borrower’s unemployment, the creditor may offer to temporarily reduce or delay payments. Making only minimum payments for a while can also help stretch out available cash a bit longer.
Managing Cash Flow
Access to cash flow will be another immediate need for a terminated worker. Just as the circulation of blood is critical to the functioning of the human body, the circulation of cash is critical to one’s financial health. It is best to avoid using credit cards to pay expenses, as the increased debt load will only create additional stress and further reduce cash flow. In addition to maintaining an emergency supply of cash, knowing when, where, and how to apply for unemployment benefits is also important.
Unemployment insurance can soften the blow of a layoff, but it most likely will not completely replace the lost paycheck. Still, if the job loss qualifies the worker for this benefit, it makes sense to apply for unemployment benefits as soon as possible. In the United States, each state has a state unemployment insurance agency that manages this process. Workers can contact the United States Department of Labor for information specific to their home states.
Critical Supplies for a Job Loss Emergency Kit
Just as people who live in hurricane prone areas prepare hurricane kits with critical supplies at the ready, a “job loss kit” can serve a similar purpose if the career horizon should become stormy. Critical items for the job loss emergency kit include:
- Contact information for the local unemployment office. Applying as soon as possible for unemployment benefits helps keep the cash flowing and the bills paid during the job search.
- Cash, and plenty of it. This is the emergency fund at a local bank or credit union. Ideally, it contains a balance equal to six months or so of critical expenses, such as food, clothing, transportation and mortgage or rent payments. Searching for a new career is much less stressful when the bill collectors are held at bay for at least six months.
- An updated personal or family budget. If there ever was an ideal time to refine the personal spending plan, this is it. Use the budget to carefully control cash flow and eliminate non-critical expenses.
- An updated resume and cover letters. When someone is suddenly unemployed, the immediate new job becomes that of finding a job. Having updated resumes at the ready makes this task easier.
- An updated list of all personal and professional contacts. Networking with friends and colleagues may uncover hidden career opportunities that are not advertised in the media. Popular web sites, such as LinkedIn and Facebook, make the task of professional networking easier than ever.
- A business plan for those considering starting their own business “someday.” An unexpected layoff can quickly transform “someday” into “today.” With a well-crafted business plan in hand, this transition can happen more quickly and with less stress.
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