Saving strategies, before and after a job loss
During a recent online discussion, two readers asked what I found to be bookend questions.
One was facing a possible job loss and was concerned about which financial steps to take to prepare for unemployment. The other was wondering what to do, money-wise, to recover from the time she spent unemployed.
There are things you should do once it is clear you are going to be laid off. But what if there is some uncertainty about your continued employment? What then?
“I was told that my company is being bought out, making job loss a possibility,” the first woman wrote. “This came completely out of the blue, as we are doing very well, though I guess that is why the larger company wants to acquire us. My boss wanted to give me a heads up, but he doesn’t know any details yet. I am the breadwinner in my family. How do I deal with this? Just save money as best I can and not panic?”
Yes, don’t panic. You have to stay calm while at the same time going into what I call crisis mode, which means immediately taking an assessment of your financial holdings. Now is the time to become intimately familiar with your expenses. Start saving as much as you can.
“I am terrified to spend money,” the woman wrote. “We have two kids and an expensive mortgage. We don’t have as much in savings as I’d like because we’ve been paying off credit cards. In fact, I just paid $4,000 the day before I got the news. There is a chance I may not know about my job for weeks.”
As she waits to learn her employment fate, she should suspend any aggressive debt-payoff plan and just make minimum payments. It’s definitely important for her to cut expenses as much as she can and to hoard cash, especially if her emergency fund has a low balance.
As an extreme measure, she might also consider suspending contributions to her retirement plan. Right now, while there is so much uncertainly about her employment, she needs to prepare for possible months without income.
“Should I start looking for a renter for our home?” the reader asked. “Should I look for another job? I have already applied for one other job, just in case.”
Not yet and yes.
The largest expense for most families is their rent or mortgage. If you can’t or you’re not willing to move to cut costs, you should consider whether you have the room to bring in a boarder. You can certainly start clearing space in your home and asking around for possible roommates. But just wait to see if this step is necessary.
It’s definitely wise to start looking for an exit if you’ve been told you may be shown the door. You can always turn down a job offer. Even if you aren’t laid off, you might end up finding a better, more secure job.
So then the worst does happen. You lose your job.
“I have been unemployed for about 15 months total over the past few years,” the second reader wrote. “These gaps in employment have completely wiped out my savings and have put me behind on other debts as well. I am trying to get myself back on track but admittedly wasn’t too financially savvy before I was laid off from my long-term job a few years ago. Do you have any advice on getting back on track and rebuilding savings?”
This advice proves to be most difficult for people who did all the right things and still had to exhaust their savings to survive a layoff. They become overly anxious to get back to the financial point before they became unemployed. It can also be hard for others who, like this reader, admit to being financially challenged even before becoming unemployed. Those who have learned their lesson want to quickly save money, too.
Once you’ve found a job, hit the reset button by taking the time to develop a good savings strategy. Start with continuing to live, at least for a little while, like you did when you weren’t working.
Don’t immediately go back to a big cable TV package. Don’t return to eating out a lot. Don’t reward yourself with wants because you’ve been so focused on just meeting your basic needs.
Patience is important before and after a job loss because it’s going to take time to rebuild your financial life.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.