I recently lost my job at a tech startup in California. I don’t have much in savings because of student loans and credit card debt. I’m receiving one week’s worth of severance. I am confident that with my skills and network I can find another job within a few months, but how can I make ends meet in the meantime?
– Karen, San Jose
When I got laid off in 2009 it was in the thick of the financial recession. My chances of finding another position similar to the one I’d lost (and with a similar salary) were slim. It was then that I decided to do the inevitable – join the ranks of the self-employed. I’d pondered making the move several months prior, always too frightened to quit my job and make the leap. How would I afford health insurance? What if I didn’t make money for several weeks or months?
Now with a pink slip in hand, the decision had been made for me. And I was grateful for the kick-in-the-pants to finally go it alone.
I was fortunate to receive about four weeks of severance. I also had a savings cushion to pad my bank account for several months, as well.
Still, I had to follow many of the following steps to get my financial ducks in a row and avoid falling behind on bills. Here’s my advice:
Apply for Unemployment
The sooner you apply the faster you can expect to receive unemployment benefits from your state. The maximum claim in California is $450 a week, depending on how much you were making at your previous job. California’s Employment Development Department says this: “Weekly benefit amounts range from a minimum of $40 to a maximum of $450 depending on the claimant’s quarterly earnings. To qualify for the maximum amount each week ($450) an individual must earn at least $11,674.01 in a calendar quarter during the base period (an individual’s earnings during a specific 12-month period).
Secure Health Insurance
Don’t risk falling into even more debt because of an unexpected medical bill during this time period. I know it may not seem like you can afford health insurance, but try to prioritize this expense, if at all possible.
You can opt to keep your previous health insurance plan provided by your employer through COBRA, a federal program, for up to 18 months. This can be pricey since you have to pay not just your portion of the cost, but also your employer’s, plus typically a 2% fee. Your employer should send you the election form within 30 days. You have another 60 days to apply. Coverage begins on the date of your last day or the date when your benefits end.
Some more affordable alternatives: If your spouse has health insurance from his or her employer, see if you can piggyback on that.
You could opt for a healthcare plan via your state’s Marketplace, too. While the open-enrollment period is generally in the fall, if you lose your job at any point and expect to lose coverage in 60 days, you may be eligible for a “special enrollment period.” To learn more, visit HealthCare.gov or call 1-800-318-2596.
Finally, if you’re a member of a union, a professional organization or taking courses part-time at local school, you may be able to get more affordable, group health insurance.
Shore Up Cash
Selling belongings and performing part-time tasks in your spare time can help you shore up much needed cash, as you secure your next job. Web sites like Moonlighting, TaskRabbit and UpWork may be able to connect you with quick local and virtual gigs that can help you bring in a few extra hundred dollars per month, maybe more. And check out my previous post here on where you can sell your unwanted belongings for the best price.
Revisit Loans and Card Balances
You mentioned you have some debt. It’s important that you do everything you can to avoid falling behind on payments. Get ahead of any potential financial challenges by speaking to your lenders and creditors about alternative payment options. For example, if you have federal student loans you may be eligible to defer payments until you secure your next full-time job. You may also want to look into transferring your high interest credit card debt to a 0% APR credit card to avoid interest payments for the next year. Be sure you can also pay off the debt within the 0% introductory rate term.
Protect Your 401(k)
You may be tempted to cash out your retirement savings to make ends meet, but remember you face taxes and a penalty for an early withdrawal from your 401(k) before age 59 ½. It’s better to leave your money in the account until you start your next job. At that point you can roll the account into your new employer’s 401(k) plan. Or, you can opt to do a direct transfer now into an individual retirement account or IRA penalty and tax free.
Pare Down Expenses
With just a week’s worth of severance and little in a savings account, it’s definitely time to cut down your monthly spending from food to clothing and cable. Monthly subscriptions (think: gym membership, cable plans, subscription boxes) and all other recurring expenses that are not necessary, should be suspended first.
Some Tax Reminders
Keep in mind that your job search costs may be tax deductible. That can help to reduce your taxable income. Be sure to collect receipts that reflect your job searching status such as resume and business card printings. The same goes for relocation costs related to moving for a new job and any mileage you rack up driving to and from interviews.
Also important to note: unemployment benefits are considered taxable income, per the IRS. You’ll receive Form 1099-G that will entail you how much unemployment you have to report.
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Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.