10 Things to Do Right Away if You’re Laid Off
1. Consult with a financial advisor.
It’s important to understand the financial impact of your job loss and strategize the next steps. Whether you think the financial impact is significant or minor, it’s important to consult with an expert to make sure you can make informed decisions that can impact your future.
DiversiFi offers an expedited service through our Tech Layoff Package to help you navigate this unexpected event. Whether you’re new to Financial Planning, or already have healthy financial habits, it’s important to ensure that you understand your severance package and make any necessary adjustments quickly to avoid surprises. We’re here to help!
2. Review your budget.
If you don’t already have a budget or awareness of your spending habits, we recommend that you prioritize this right away. We recommend Monarch Money (which has a 50% discount for new users) if you don’t have a tool already. Our tips for you:
Look at your monthly cash flow and understand the impacts of your loss of income as it relates to your spending habits.
If budget cuts are needed, then:
Prioritize essential expenses such as housing, utilities, groceries, and insurance.
Identify and eliminate non-essential expenses from your budget. This may include subscription services, dining out, or other discretionary spending.
If you have outstanding debts, contact your creditors to discuss your situation. Some may be willing to work with you on temporary payment arrangements or hardship programs.
3. Calculate your burn rate from emergency fund/savings.
It will be important to analyze how your spending and budget will impact your monthly emergency savings. You’ll want to have a clear picture of how long your cash will last you and if there are any actions you should take to stretch it to last longer. You should aim to answer the following:
How long will my cash/savings last me?
Do I need to make any immediate changes to make my cash last longer?
When should I get a new job? What should my target salary be?
Should I stop/update my automatic investment contributions to increase my cash holdings?
DiversiFi Tip!
Rather than burn through the balance of your checking account and replenish when it’s close to depletion, we recommend setting up recurring transfers from your savings and/or brokerage accounts into your checking that equal either A) the amount of your previous paychecks, or B) the amount you need for your essential costs in your budget. This way, your account balance will be more stable and predictable.
Why we recommend this approach - If you need to dip into your savings, it’s better to do so in a consistent way, rather than deplete your checking and have to make large transfers to cover the next month or so of expenses. We find this is an emotionally and mentally healthier way to access emergency funds, and it also prevents your account balance from dipping too low to cover automatic payments that could cause an unwanted overdraft fee. This approach also helps you calculate a more accurate monthly burn rate.
4. Understand your severance package.
If your employer provides a severance package, carefully review the terms. Understand the duration and amount of severance pay and any additional benefits included. Things you may discuss with your financial advisor:
Are my severance and unemployment pay at the proper withholding amount?
Is severance pay considered wages?
What urgency should I place on securing employment?
What happens when my severance ends?
5. Understand health insurance coverage & options.
Explore options for health insurance coverage after your employment ends. COBRA (Consolidated Omnibus Budget Reconciliation Act) allows you to continue your employer-sponsored health insurance for a limited period, but it can be expensive. Investigate other healthcare options available in your region. You’ll want to determine:
Does my company provide healthcare coverage as part of my severance package?
Should I enroll in COBRA or Private Health Insurance?
Am I eligible to enroll in my spouse's healthcare plan?
6. Determine eligibility for unemployment benefits.
Different states have different rules around unemployment, so it’s important to do your research or work with a professional who can advise you on the process and requirements in your area. Questions to ask yourself:
Am I eligible for unemployment? How do I apply?
If so, what can I expect? How would I estimate how much to expect?
Am I leaving money on the table by not applying for unemployment insurance?
Is my unemployment pay at the proper withholding amount?
7. Assess tax implications.
Be aware of any tax implications associated with your severance package, unemployment benefits, or other income sources. Consult a tax professional to ensure you understand and address potential tax obligations. You’ll want to discuss:
What can I do now to avoid tax-related surprises later this year?
How much tax will I owe?
Am I subject to more/less tax based on my severance package?
What if I need to sell investments to cover my expenses? What is the most tax-efficient way to do so?
8. Understand options for your company equity/stock.
Whether you work at a private or a publicly traded company, there are considerations you should take into account when it comes to your equity. A financial advisor will be able to help you determine:
What should I do with my company stock? Hold? Sell? Other?
What strategy should I use to sell my company stock? And when?
Are there any expiration dates to be aware of concerning my equity awards?
I work at a private company - am I leaving money on the table if I let my options expire?
Should I exercise my options? How do I cover the cost of exercising my options, and what are the tax implications?
What should I do with my 401(k)?
If I get a new job, how does that impact my 401(k) contributions for the year?
9. Assess & adjust your investing strategy.
Maybe you’ve been regularly contributing to a brokerage account, or perhaps you have accounts you haven’t touched in a while. You’ll want to review these accounts and understand if you need to adjust your investment approach.
Do you regularly contribute to your investment account(s)? Without your income, should changes be made to align with your new budget?
Do you regularly withdraw from any investment account(s)? Do any changes need to be made to align with your new budget?
Has your risk tolerance changed? Do you need to rebalance any of your accounts into a different strategy?
10. Determine any actions you need to take in the short term.
Based on all the topics and questions we’ve listed above, you should have a list of action items to take. Whether it’s research-related, finding a financial or tax professional to consult with, or making changes to your spending, it’s important to define goals and take action. We recommend prioritizing your list of to-do’s and assigning due dates. If you don’t know where to start and need help, reach out - we’re here to support you!
DiversiFi Capital LLC is a registered investment adviser located in CA and may only transact business or render personalized investment advice in those states and international jurisdictions where we are registered, notice filed, or where we qualify for an exemption or exclusion from registration requirements. Any communications with prospective clients residing in jurisdictions where DiversiFi Capital LLC is not registered or licensed shall be limited so as not to trigger registration or licensing requirements.
Past performance is not indicative of future returns, and investing always carries inherent risks, including the potential loss of principal capital. Any investment strategies are specific to individual clients and may not be representative of the experiences of all clients.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed.