Bounced, Not Broken: Six Steps After an Unexpected Job Loss

An unexpected job loss is a highly stressful event. However, as with many challenges in life, a bit of contingency planning can significantly ease the impact. By following six simple steps, you can begin to regain control and create a more stable foundation for your financial future.

Before diving into the six steps, it’s important to prepare for the possibility of a job loss before it occurs. Building an emergency fund with approximately 3-6 months’ worth of essential expenses is key. It’s also helpful to understand the difference between essential and discretionary spending. This awareness can save you time and stress if your income suddenly changes. While preparation can’t prevent a job loss, the six steps below are designed to help you navigate the situation if it does occur.

Step 1: Review Your Financial Situation

Start by evaluating your current financial position. This includes taking a close look at your net worth and cash flow:

• Net Worth: Review your assets and liabilities. How much cash do you have readily available? Do you have enough in your emergency fund to cover 3-6 months of essential expenses? What outstanding debts and monthly obligations are you currently responsible for?
• Cash Flow: Assess your income and expenses identifying opportunities to reduce non-essential spending. Temporarily cutting discretionary expenses can significantly improve your ability to manage a period of unemployment.

Step 2: Apply for Unemployment Benefits

While each state has its own rules and eligibility requirements, it’s important to research and apply for unemployment benefits immediately. The sooner you file, the sooner you can begin receiving payments, giving you more flexibility to plan your next steps. It’s also important to check whether you’re eligible for severance pay from your employer.¹

Step 3: Maintain Health Insurance Coverage

Aside from the loss of income, losing health insurance is often one of the most significant impacts of job loss, especially if a medical emergency arises. Fortunately, there are several options to consider when evaluating your coverage needs:

• Continuation of Health Coverage (COBRA): Although expensive, the Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows you to stay on your employer’s health insurance plan for up to 18 months after leaving the company. ²
• Spouse’s Plan: If your spouse is employed and has access to coverage, joining their health insurance plan may be the most cost-effective option.
• Marketplace Plans: Available through your state, these income-based plans can offer affordable alternatives for those who qualify.

Step 4: Communicate with Creditors and Service Providers

If you anticipate financial strain, it’s important to proactively reach out to lenders and service providers if you anticipate missing loan, credit card, or utility payments. Many companies provide support options, including:

• Reduced or deferred payment plans without fees and penalties
• Loan refinancing
• Mortgage modification

Try to avoid actions that could lead to additional costs now or in the future. Maintaining a sufficient emergency reserve is a major safeguard, helping you avoid financial decisions that may have negative long-term consequences.

Step 5: Review Financial Goals

While long-term goals are important, a job loss often shifts the focus to immediate needs. In addition to reducing discretionary spending, consider the following retirement-related adjustments to help ease short-term financial pressure:

• Contributions: Review your contributions to taxable and Roth retirement accounts. Temporarily reducing these contributions can help free up cash flow to meet immediate expenses.
• Adjust Investment Strategy: Avoid making emotional or reactive decisions and consult with your financial advisor to see if your investment strategy should be adjusted to reflect your new circumstances. As always, be cautious about withdrawing from retirement accounts early, as this can trigger tax penalties and negatively impact your long-term financial plan.

Step 6: Rebuild

Remember, this is temporary, things will get better, and you will find another job. When you do, it’s time to rebuild your financial foundation and replenish any reserves you may have used. Here are a few steps to consider:

• Rebuild Your Emergency Fund: Begin by saving to restore your emergency fund to cover 3-6 months of essential expenses.
• Restart Contributions: Review and resume contributions to retirement or investment accounts that may have been paused during unemployment.
• Rollover Your Old Employer’s Retirement Plan: Since this plan is no longer active, consider rolling it into an IRA account. This gives you greater control over your investment choices, beyond the limited options from your old employer.
• Review New Employer Benefits: Finally, carefully evaluate the benefits offered by your new employer, including health insurance, retirement plans, and other perks.

Sources:

1. Unemployment benefits | USAGov
2. Continuation of Health Coverage (COBRA) | U.S. Department of Labor

Disclosures:

Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.

No current or future client should assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice. As with any investment strategy, there is the possibility of profitability as well as loss.