Updated on 11.21.11

The Unemployment Plan

Trent Hamm

Craig writes in:

I just found out that I’m being “downsized” at the end of the year. While I have a small emergency fund, I do have a mortgage and a bit of credit card debt. I also have three kids at home. My wife will continue to work, but she has only a part-time job with minimal benefits. I am receiving a pretty good severance package, though.

Rather than panicking, I’m trying to be calm and rational about figuring out what’s next. This made me think of you and The Simple Dollar. If you were in my shoes, what would you do?

Here are the steps I would take in your situation.

Start living cheaper immediately. This means cutting back on or eliminating non-essentials in your life. Cancel your Netflix account. Pare back on your premium movie channels. Start eating at home more. Start brown-bagging your lunch. Just use good old fashioned frugality to your advantage, because you’re at a point where every penny matters more than ever.

Move to minimum payments on all debts. If I’m making any payments larger than the minimum on any of my debts, I’d pare them down to the minimum right now. This might involve adjusting automatic mortgage payments or other such things. I just couldn’t afford those excess payments if I were in this type of situation.

Build up my emergency fund. Every excess dime I earned between now and leaving my job would go into here. Then, during my actual period of unemployment, I would use this account as a supplement to what my spouse was bringing in, if needed. This arrangement would allow me to survive a fairly long period of unemployment without getting into real trouble.

Investigate my COBRA options. If there was a health insurance need, and it sounds like there is, I would look into the COBRA options at work. COBRA is a federal law that allows you to use the health insurance provided by your former employer for a period if you pay for the insurance. If my family needed my insurance, I would strongly consider using COBRA to extend my insurance.

Polish up my resume. I would focus on actual accomplishments over the last five to ten years rather than just a long job history. I’d be better off listing things I’ve achieved and skills that are very clearly marketable than just listing all of the jobs I’d done over the years. Employers don’t care about the irrelevant job I was doing in 1993, so I’d save that line for a description of something I achieved at my most recent job.

Send an individual email to each person I know well in my field. I’d suggest that I might be looking for greener pastures and ask if they know of any relevant positions that might be available. Social connections are the most valuable tool you have for getting your foot in the door at a new job.

Hit the social networking sites, especially LinkedIn and Twitter. I’d use LinkedIn to build up professional connections, starting with the people above that I emailed. I’d use Twitter to dive into professionally-oriented conversations with people in my field. LinkedIn does a great job of shoring up the connections one already has, while Twitter does a great job of starting to build new connections.

Start building a side gig. Even with all of these things, you’re going to have some time to burn. Use it productively. Make an effort to start a side business in an area you’re passionate about, whatever that might be. I know one person who moonlights as a high school sports referee. Another person I know makes art that he sells on Etsy. The key is to start something that will bring you some income now, but more importantly has the possibility to grow into something later.

In other words, this is a time to be busy. Get started now.

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  1. krantcents says:

    Great advice, I would start networking immediately since that takes time to get rolling. Definitely sut back all your expenses immediately.

  2. Tracy says:

    Also, explore the options around your wife picking up more hours (particularly if the reason she’s working part time is because of the 3 children at home)

  3. valleycat1 says:

    Investigate COBRA but also start compare the cost with private health insurance as COBRA continuation is very expensive (though it could be worth it if someone in the family has a pre-existing condition).

    If your company offers resources or other assistance that might help you find another job, take advantage of it.

  4. Telephus44 says:

    Another option is to make sure that you take advantage of any benfits your workplace offers before you get laid off. Get that annual physical while you have health insurance. Get that cavity filled while you have dental insurance. Spend that FSA money. Etc.

  5. Steven says:

    Pare back on the premium movie channels? How about cutting cable altogether? I’m not sure why people pay for cable in the first place.

  6. kc says:

    As an alternative to Cobra, check out temporary insurance.

  7. Teri Pittman says:

    I agree with number 1 and feel it’s more important than anything else. Figure that you might be out of work a lot longer than you’d expect. If you’re wrong, it’s no big deal. I was out of work for 13 months when I was laid off last. I waited longer than I should have to cut back. I’d also recommend stocking up on food items. If you have a good food storage in place, it frees up your money for other things.

  8. getagrip says:

    You might also want to take a little time and see what unemployment benefits you may be eligable for in your state and what the requirements are if you don’t know (e.g. any waiting period, etc.). Some folks who have never asked or needed such support for themselves before forgo them until they are desperate, but they are supposed to be there for just such situations to help you until you get employment. Even if its not much compared to your current income/salary, it can help buy you a few months with what you may already have saved and the severance. Your taxes helped to pay for it, may as well use it when you actually need it.

  9. Sara says:

    If there are things that you recently purchased that can be returned, do that! Even small purchases that are not absolutely needed can add up. And tell your kids exactly what is going on. Kids are really very reasonable about things like missing a few months of some activity while you find a job. Or having a laid back, homemade holiday. But it seems as if many parents are just never really honest with them about where things fit in the budget. It is a huge gift to kids to learn how to happily survive difficult times.

  10. littlepitcher says:

    Weatherize your dwelling now. You will be spending more time at home, so you want to cut your energy bills, not increase them. Familiarize yourself with mass transit maps and routes, so you can utilize it for as much of your job search as possible. Make sure you are fit, and get good shoes which don’t create blisters. If you have back pain, begin exercises to relieve it.
    Prune your possessions and sell the surplus.

  11. Maggie says:

    I lost my job (downsized) about 7 years ago but was rehired by my same company later. The most important thing I can tell you is take advantage of every opportunity your company gives you for preparing a resume and learning how to search for another job. Also, do not be ashamed to tell EVERYONE you are looking for a job. You never know who will hear/overhear and offer you an interview. You need to realize that this was a company business decision not a performance issue and that is not your fault. So, talk this up. And continue to look for jobs within your company while you still have employment. There may be something there.
    I hate it that companies always have these IRIF’s/VRIF’s this time of the year. My company is having one this year, too.
    Good luck to you and your family.

  12. valleycat1 says:

    One more thing – as soon as you know exactly how much you will net from the severance package, sit down with your wife to plan a realistic budget based on worst-case how long you think it will take you to get into another job, figure out where you need to cut expenses, and discuss your other options for bringing in more money in the meantime.

  13. Jackowick says:

    Remember that finding a new job will “be” your new job for a while. Set the alarm, shower, and get dressed. This maintains momemtum, self esteem, and you’d be amazed what kind of calming affect this can have on kids, as well as relieve potential spousal tension.

    Get into a routine of places you visit, both real world and online for leads. Everytime you leave the house, have a business card or resume and remember to make a good presentation. You never known when a network opportunity comes up, and you have to be prepapred. Better to be in a polo shirt and nice jeans or khakis at Home Depot than a basketball jersey and track pants if you run into an old friend who works in hiring.

    Make a twitter for job searching. Update it daily with how many resumes/interviews/leads you worked on. Do not lose momentum.

    Crash college job fairs too ;)

  14. Jackowick says:

    And don’t be afraid to reshop your insurances for home/auto now. I recently reevaluated mine and found that if I packaged both with Triple-A, in my area, I was able to net savings of a few hundred dollars. It never hurts to shop when it comes to insurance, and doing it while still pulling a paycheck is a good idea.

  15. HW says:

    COBRA can be VERY expensive, depending on how good your insurance is and what your company is paying for it. Short-term insurance is cheap and covers you in case of an emergency, but with no well care. It’s what we’ve used before. Or, look into getting your own insurance plan.

  16. Maggie says:

    I thought of something else. My company sent me to Drake, Beam & Morin for job search assistance. At our company, when you move from job to job, there is only an internal form to fill out, no resume. If you don’t have a good one, do that the very first thing. Also, I agree with #13. Finding a new job is your new job. I spent every day at the DBM office from 9 – 4 pm. I submitted resumes, attended training sessions and learned how to interview. Worth every penny and gave me a feeling of accomplishment when you don’t have that after being “let go.” I also was able to get unemployment insurance because I was let go on an IRIF (involuntary vs voluntary)and used that to pay off small bills so my severance could be used for daily living. Again, my best wishes for your success in getting another job. Don’t be afraid to look outside your current field. You might find something totally wonderful.

  17. Rebecca says:

    About COBRA – earlier this year, the company I work for was purchased by another company. They severed 90% of the existing employees (I was spared). At the time, I got a good look at what COBRA actually costs, and what unemployment benefits would be available to us. It turned out that COBRA costs to cover me and my husband would have exceeded my total unemployment benefits for the month. In other words, while it was legally offered and available to the severed workers, it wasn’t practical. Health insurance tied to employment – I sure hope this changes in the future.

  18. Zian says:

    As far as #1 goes, I’d suggest cutting as drastically as possible right now and then adding things back when it turns out you can because studeis described in The Upside of Irrationality demonstrate that people get used to living cheaper much quicker than they expect to. In addition, if you slowly downsize, then you’ll have to do go throug the adjusting process multiple times, which multiplies the pain.

  19. Thad P says:

    A few years ago I was in between employers and went the temporary insurance route. It was more affordable than COBRA, but it is of limited duration. My wife was diagnosed with hypertension during our first temporary insurance period, and was dropped in the second period.

    Another important thing to do is to get letters of creditable insurance from your insurance company before you go off of your company plan. That will make it easier to get into individual plans later on.

    If you happen to have a health need during the time you are off of insurance, be sure to ask for any self-pay discounts from providers.

    Best of luck to you.

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