Personal Finance Topic #250 – Financial Checklist if you lose your job

Financial Checklist when you lose your job

If you are notified that your position is going away, or that you want to quit because you are sick of your job, you should go through a financial checklist before and after you sever your ties with the old employer.

• Lower your taxes – If you know your income will not be replaced or replaced by lower paying job soon after your last day on the job, go immediately to your payroll department and take the following actions:
  • Change your W-4 to a high number – like Married 20 or Single 20 - as soon as you know you are being laid off.  This will lower your payroll withholding amount so you can take home more money until your paycheck stops completely.  This will also prevent your accrued pay (like vacation pay or severance pay) to be taxed heavily.  Once you start a new job, you can change your W-4 to continue withholding lower payroll tax until the end of the year.  If you normally request Married 2, the new W-4 can be changed to Married-3, likewise for single filer.
  • Don’t touch your 401(k). This is the worst mistake anyone can make. Your retirement is the key to future survival. So don’t mess with it. About a month after you leave your job, roll over your 401(k) funds into a traditional IRA at an investment company that has low fees (Fidelity, Vanguard, USAA, etc.), and keep your dirty hands off of it. You don’t want to pay up to 40% in tax and penalty to rob your valuable retirement money. The only time one can touch the money is to prevent a foreclosure or bankruptcy.
• Build up emergency fund. If you don’t have another job lined up immediately after our termination date, start building a war chest yesterday.  If you already have an emergency fund, but have no prospect of landing a new job, go ahead and beef up your emergency fund.
• Don't borrow more money.  This is a big mistake many people make when they suddenly lose a job.  The reason one falls into a financial pickle is mostly due to previous loans they must pay back.  Don't add more grief to your misery.  So cut up your credit card ASAP.
• Create a budget and stick to it. This will empower you and your spouse to get serious about controlling your spending habits.  This is not the time you can say, "Whatever you want, honey."  Get a strict budget both of you can live with, and just stick to it - no exception.
• Beef up your earning power – This has many paths. Let me cite a few:
  • Outline a career path, 1, 5, 10 years from now. Be specific on earlier goals, like “I want to find a job that pays at least 10% more than what I was making before.” Or “I want to change my career path by 20XX, and will ear $YYY in 5 years.” You may want to add new skills, start a training course, or even go back to school. Do whatever it takes to empower yourself to become a better person who is more marketable than your old self.
  • Most new jobs are found through networking. If you don’t know some people who knows where the new positions are, get started finding some. There are plenty of job search groups and networking meetings that will teach you how to improve the chance of landing a new job quickly.
• Give your spouse assurance that you are willing to use common sense and compassion (and a bit of humility) to get through the trials and tribulations that may come your way. Two can be much stronger than one to fight the oncoming emergency. Don’t give your spouse more misery and depression than you already have.
• Have hope. As we all say, “Expect the worst, but hope for the best.” This time, mean it. Stop dining out and switch to rice and beans, and stop going on expensive vacations. This year, Christmas is a craft. Kids won’t suffer psycologically for not having a platsic toy that breaks in 4 days. Unsubscribe cable, expensive phone service, and perhaps replace your debt ridden car with an economical beater. Man up and do the right thing.

These are just few items to consider.  Let me know if you have ideas to spruce up your finances if one is about to lose a job.