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  • Writer's pictureBen LeFort

How to Manage Money After a Job Loss

Losing a job can be a traumatic experience. Especially if the job loss catches you entirely off guard and unprepared. The decisions you make in the days, weeks, and months following a job loss can have a dramatic impact on your financial security.

There are seven steps to help stabilize your finances after a job loss.

  1. Ensure you receive any financial compensation you might be entitled to from your employer and, if possible secure a letter of recommendation from your boss.

  2. Apply for any government unemployment benefits you might be eligible for.

  3. Cut non-essential spending.

  4. Evaluate if you need to hit pause on any of your financial goals.

  5. Begin drawing down your emergency fund.

  6. Start bringing in income.

  7. Continue to apply for new jobs.

You might notice that all seven steps work towards the same goal, increasing your cash flow during your period of unemployment. The stronger your cash flow is, the longer you’ll be able to get by without truly disastrous financial consequences.

Are you eligible for any financial compensation from your employer?

Depending on where you live, how long you have worked for your employer, and the circumstances surrounding the termination of your employment, you may be eligible for some kind of severance pay.

For example, I live in the province of Ontario in Canada. In Ontario, the government lays out particular guidelines for severance pay.

If I were to lose my job and met all the requirements for severance pay, I would be entitled to one week’s worth of wages for each year I worked for my employer. If I had worked there for 10 years and made $52,000 per year, I could be potentially eligible for $10,000($52,000÷52 X 10.)

So, if you have found out that you are going to be losing your job, the first thing to do would be to research your local labor laws and figure out if you are eligible for severance pay and if so, how much.

If you are fortunate enough to receive any severance pay, it might be wise to consider using those funds to top up your emergency fund, which you’ll likely begin drawing down during your period of unemployment.

Also, depending on the circumstances of how you lost your job, you might want to consider asking your boss for a letter of recommendation. This will be helpful when trying to secure your next job. Obviously, if you got fired with cause, this may not be an option.

Apply for government unemployment benefits

Depending on the type of job you had, where you live, and the circumstances of you losing your job, you might also be eligible for unemployment benefits.

Where I live in Canada, we have federally funded Employment Insurance (EI). Here are the primary eligibility requirements for EI, as detailed by the Canadian government.

  • Had to have been employed in insurable employment.

  • Lost your job through no fault of your own.

  • Had been without work and without pay for at least seven consecutive days in the last 52 weeks.

  • Have worked for the required number of insurable employment hours in the last 52 weeks or since the start of your last EI claim, whichever is shorter.

  • You are ready, willing and capable of working each day;

  • You are actively looking for work (you must keep a written record of employers you contact, including when you contacted them).

If I lost my job and met the above requirements, I could be entitled to 55% of my insurable earnings to a maximum of $573 per week.

If you live in the U.S, The Department of Labor has tips on how to apply for Unemployment Insurance here.

Knowing exactly how much you will receive from government unemployment benefits is critical because that money, along with the money in your emergency fund, will make up the bulk of your cash flow during your period of unemployment.

Cut non-essential spending

Whenever I talk about saving for an emergency fund, I want readers to think about how many months’ worth of essential living expenses they want their emergency fund.

The reason I believe an emergency fund should be designed to cover essential spending rather than all spending is that when you experience a true financial emergency, like a job loss, your spending habits should change.

When you lose your job, you have one financial goal; paying your bills until you can land a new job.

  • That means ensuring you can keep a roof over your head and food on the table (along with other essential spending) for as long as possible.

  • When you lose your job, non-essential spending like vacations, electronics, and eating out should be reduced if not cut out altogether until you find a new job.

The scary thing about losing a job is the tremendous level of uncertainty that comes with a job loss.

  • You might be out of work for 6 weeks.

  • You might be out of work for 6 months (or longer.)

The problem is that you don’t know in advance how long that might be. So, we have to plan for the worst and do everything in our power to arrive at the best-case outcome. That means cutting non-essential spending during your period of unemployment and pounding that pavement every day looking for a new job.

Consider hitting pause on your long term financial goals

This comes back to the idea of managing your cash flow during a period of extreme uncertainty.

During normal times when you have a paycheck coming in every two weeks, it makes sense to allocate a certain portion of your paycheck to saving for retirement and paying off debt, among other important financial goals.

When the paychecks stop coming in, it makes sense to evaluate whether or not you should put these longer-term goals on hold. During this time, it’s all about managing how much money is going out while money is not coming in. Although goals like retirement saving and paying down debt are important, they still represent money going out.

If you were saving $400 per month towards retirement and $350 per month to paying down your debt, that is $750 per month, you could reallocate towards your essential living expenses.

Two things you’ll need to consider.

  1. When you do land a job, you’ll have to play catch up on any of the goals you put on pause.

  2. If you are putting your debt repayment plans on hold, it’s critical you continue to make the minimum payments on all your loans. Failing to do so will result in penalties and could wreck your credit.

Plan on how you’ll draw down your emergency savings

If you’ve lost your job, it’s time to crack open that emergency fund because guess what? You are in a financial emergency. The question becomes, how much should withdraw from your emergency fund each month?

  • The short answer: however, much money you need to cover your essential living expenses.

  • The long answer: It depends on how much money you have coming in, what expenses can be reduced or deferred, and how long you expect to be without work.

For example, If your essential living expenses were $2,500 per month and you had $1,200 per month coming in from unemployment benefits, you would need to withdraw $1,300 that month from your emergency fund.

The more money you have coming in, the less you need to rely on your emergency fund, and the longer that emergency fund will last. Which is a perfect segue to the next action item.

Start bringing in income

As we’ve covered, the math equation you need to balance after a job loss is money coming in versus money going out.

We’ve discussed the various ways to reduce the money going out. While an emergency fund can help pay for essential services, don’t lose the fact that the math becomes a lot simpler if you can find a way to bring some money in.

When I graduated from University during the financial crisis, I had a hell of a time finding the “career job” that I wanted. But, I still had bills to pay, including rent and a hefty student loan bill.

So, I took any job I could find to help pay those bills until I could land a job that I wanted. It can be frustrating and humbling to take a job that is earning a fraction of what you are accustomed to, but it might be necessary.

Keep one thing in mind, though, it is not forever. Even though we don’t know how long recessions and tough job markets last, but we know it won’t last forever.

So, whether it be a job, a side-hustle, or starting a business, it’s essential to find ways to begin bringing at least some money in. Even bringing in a little bit of money can help you stretch your emergency fund to last as long as possible.

One word of caution. If you are receiving any type of unemployment benefits, make sure you realize how earning income will impact those benefits before you land a job or a side hustle.

Often times, these type of programs are reduced or eliminated as you start bringing in income.

Continue applying for the jobs you really want

Cost-cutting and side hustles can make life a little less stressful, but the ultimate goal is to find another job that you are happy with that will pay you a comparable income (or more) to your old job in the shortest amount of time possible.

That means polishing up the resume and getting it to as many prospective employers as quickly and often as you can.

Here are a few tips on landing that next job.

  • Don’t hesitate to leverage your network and let your friends know you are looking for work. You never know who has a connection to a great job opportunity.

  • Apply to every job and company you want to work for. I was able to land a career job (that I am still at 7 years later) while still completing my Master’s thesis. By the time I graduated, I had already been working at that job for nearly two months. I was able to land that job because I started applying for jobs 8 months before graduation. I applied for hundreds (maybe thousands) of jobs, had dozens of phone and in-person interviews, and finally landed the right job for me.

  • Don’t give up. You’re going to get a lot of rejected applications, and the job hunt will probably take a lot longer than you imagined. You might have moments where you feel like things are hopeless, and you’ll never land a job. Tell that little voice in your head to shut up. It will be hard, but you can and will make it through to the other side as long as you don’t give up.

It will be difficult, but you can get through this

Losing a job is a stressful and challenging experience, especially if you have a family that you support. There are some financial decisions you can make it through this rough patch.

Start by ensuring you know what, if any, severance pay or financial compensation you might be owed by your employer. If you receive a lump sum of money, best to add that right into your emergency fund as you are going to need that cash while you’re on the job hunt.

Next, make sure you understand what government unemployment benefits you might be entitled to. Any money coming in will make this period of unemployment easier. You may also want to consider landing a temporary job or picking up a side hustle to bring in some extra money.

You also need to make sure you are hanging onto every penny you can during this time. That means cutting back or eliminating all non-essential spending. It may even mean hitting pause on some of your long term financial goals that normally tie-up a lot of your money.

Above all else, just remember that this time will pass. If you make smart decisions and keep getting that resume out there, you will land a good job eventually. You got this.


This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions

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