When you lose your main source of income, it’s a shock to the system. Your mind is probably flooded with questions: What comes next? What can I do about money in the meantime?
There’s no denying that disruption in income, like from a job loss, is difficult — and navigating such a situation in any economic climate can feel almost impossible. By having a plan on how to deal with your finances, you can get back on solid financial footing and gain some peace of mind.
As your ally, we’re here to let you know you’re not alone in this. While it may feel like you’re wading into uncharted waters, here are actions you can take now to help you make it through this tough time.
1) Put things on pause.
- Ask yourself if any scheduled major purchases are necessary, or if you can save the money instead.
- See if you can hold off on any unnecessary monthly expenses, like streaming services.
- Take a look at your collective savings and see what you can access readily without financial loss. Try to avoid tapping into long-term retirement funds early, if you can.
- Focus on what you can control, and let go of what you can’t.
You’re stressed, and naturally so. As emotions run at an all-time high, it’s important to keep them in check as much as you can when it comes to finances. It’s all too easy to allow fear or a clouded mind to lead you to make rash decisions with your investments, savings, or purchases. So, if you can, aim to pause on making any big financial decisions for the time being.
While your investment and/or retirement accounts may feel like the best place to reach for cash, avoid pulling out of the market if you can to avoid penalties. Letting your money continue to grow in the market over time will likely be best in the long run.
What you can do is familiarize yourself with any rules tied to accessing your accounts, whether investment, retirement, or general savings. Should you need to access any of those funds, it will be good to know which ones are easily accessible (and whether any need to be more accessible than they currently are).
At this time, you’ve got a lot on your plate. So, focus on the things you can handle day-to-day, and cut yourself some slack when it comes to what is out of your control.
2) Handle the immediate paperwork.
- File for unemployment benefits.
- Review your severance agreement, if you have one.
- Explore your health insurance options.
When you’ve suddenly lost your job, it can be overwhelming to know where to begin, but by knocking out a few tasks, you can begin to focus on the future. You’ll probably want to start by filing for unemployment benefits. These benefits may take some time to kick in. The sooner you can go to your state’s Department of Labor website and submit your unemployment paperwork, the better.
You’ll then want to review your health insurance options. See if you qualify for Consolidated Omnibus Budget Reconciliation Act (COBRA), a law that allows you to remain on your employer’s health insurance for a period of time after being laid off. If not, you may be able to join your partner’s plan or your parents’ (if you’re younger than 26 years and depending on which state you live in). When these aren’t options, you might consider looking into the Affordable Care Act (a.k.a. Obamacare) or Medicaid.
Finally, if you have a severance agreement, take time to review it thoroughly. You’ll want to know exactly how much and how long you’ll continue to receive income or benefits, if at all.
3) Contact those you owe money to and ask for assistance.
- Contact service providers for utilities (like electric, internet, phone), your doctor or other medical provider, etc. to see if you can set up a deferred or minimum payment plan.
- Check with all your bank, creditors, or lenders to inquire if they offer relief for those experiencing financial hardship.
Many banks and lenders help those experiencing financial hardship by providing relief or assistance programs. If you are concerned about making your monthly payments for student loans, a mortgage, a car loan, or your credit card, it is worth giving your bank, creditor, or lender a call and asking if they’re willing to waive monthly fees or defer payments.
Especially during this time surrounding COVID-19, many financial service providers are offering relief packages and payment deferment options. Learn how Ally is supporting communities during COVID-19 here.
The same goes for bills like water or electric, as well as phone or internet and medical providers. You may be able to work with them to set up a payment plan that is more manageable for the time being.
4) Review and revise your budget.
- Take a hard look at your expenses.
- Revise or create your budget to adjust for changes in income.
- Review your budget often (weekly or bi-weekly).
When you experience a loss of income (or other financial difficulty), it’s critical to reassess your budget, and you might need to make some pretty big cuts. It may be a tough step to get through, but having a revised budget in place should help you feel like you have a plan.
Cutting out expenses like a gym membership, haircuts, or dining out might feel obvious. But you may need to take a close look at other costs, like streaming subscriptions, cable, or other non-essential things that can chip away at your money.
Aim to assess your budget weekly, and while you want to be realistic, try to be as detailed as you can when planning for things like groceries, gas, utilities, and other needs — creating a list, especially for grocery-shopping, and not budging from it will help you stick to only buying necessities.
You may want to try a zero-based budgeting strategy. With a zero-based budget (a.k.a. zero-sum budget), each penny has a purpose. Your goal is to make your income minus your spending — which includes debt repayments and what you put (if anything) into savings — total zero. While this method can take a lot of effort and attention, it is great for keeping a close eye on your money, knowing exactly where everything is going, and preventing you from overspending.
Related: Lule Demmissie discusses how to prepare if you’re concerned about losing your job.
5) Consolidate or refinance debt, if necessary.
- Consider consolidating debt, if you are repaying several loans or have high-interest debt.
- Think about refinancing your home mortgage, if you can get a better interest rate.
You’ve examined your financial situation and reviewed your budget. But even after checking with your bank or loan lenders, you might still be concerned about making debt payments. If that’s the case, you might consider debt consolidation.
Debt consolidation lets you roll high-interest debts (like credit-card debt) into one, lower-interest payment. It can help you reorganize your financial obligations, lower your total interest paid, and remove the hassle of having several, separate loans to repay. Do your research on all the alternatives (like deferral options or increased monthly payments) before jumping into debt consolidation. For instance, if you plan to continue to use your credit card after consolidating, this option might not make sense for you.
During this time, you might also think about refinancing your mortgage if you have one. Depending on your circumstances, you may be able to get a better rate on your home loan, making monthly payments more manageable and saving you money in the long run. Be aware that the refinancing process can have pricey upfront costs, so you’ll want to weigh the pros and cons first.
There are plenty of trustworthy websites to help you gather information before you jump into consolidating debt or refinancing. For example, the Consumer Financial Protection Bureau (CFPB) provides guidance on many debt-related topics; the Internal Revenue Service (IRS) answers questions about taxes when accessing an IRA early; and the Social Security Administration offers valuable information on disability and insurance. As with anything, it’s helpful to first do some research.
6) Be kind to yourself.
- Allow yourself time to reflect and process your emotions.
- Don’t be afraid to ask for help or take advantage of assistance and relief programs where you can.
- Remember you aren’t alone in this experience.
Finding yourself in sudden financial uncertainty or losing your job is a lot for anyone to take on. So, allow yourself to be upset, frustrated, or sad, and take the time you need to reflect on your experience and to work through your emotions. Nobody is expected to bounce back in one day — or to do it alone, which is why we’re here to help you.
While you can take several steps to get a handle on your finances during this time, it’s okay to pause for a moment when you need to or reach out for help, if you need it — call friends, spend time with family (or by yourself, if that’s more helpful). And remember, you’re not alone, and you don’t have to come up with all the answers yourself. Don’t be afraid or embarrassed to lean on available assistance from wherever you can: That is what it’s here for!
The most important thing you can do is take care of yourself and aim to keep your gaze forward on the future, because this won’t last forever. And we’ll be your ally throughout everything — to help you through all the financial ups and downs, whenever you need.
Originally published April 2020