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August 14th, 2013

Surviving financially after a job loss


Losing a job is often traumatic, but it doesn’t have to be a financial disaster. For a variety of reasons —job terminations, layoffs, downsizing, mergers or reengineering — spells of unemployment are realistic occurrences for many people. We live in turbulent times and no one is immune to job loss.

In times of such stress, it’s easy to make hasty financial decisions that turn out poorly. So in the immediate wake of your job loss, don’t panic by cashing in your retirement plan, savings from insurance or selling off long-term investments or make any financial decision until you’ve worked out a realistic plan for dealing with your reduced income.

In the immediate aftermath of losing your job, it would be advisable to seek the help of a financial advisor that can help you sort out alternatives and present budgeting options, while structuring a plan around your short and long-term goals. A financial advisor can help you assess your unemployment situation, suggest strategies for conserving your financial resources, and perhaps most importantly, help you avoid costly mistakes that could harm your personal finances and your ability to find a good job.

To balance expenses with your changed financial status, consider such strategies as deferring any major purchases you were planning, refinancing your mortgage, shopping in bulk, reducing eating out and talking to creditors about delaying or stretching out payments. The bottom line is that you don’t want to make financial mistakes that could jeopardize your financial wellbeing for years to come.

It has long seemed like trivial advice but setting aside three to six months’ worth of normal living expenses in an emergency fund can assist in cushioning the impact of job loss. That advice is no longer something any investor can ignore because you never know when you may be shown the pink slip.

To meet this requirement, consider making regular subscriptions into the TT Income Fund, a short term investment vehicle (6 months – 1 year), which allows you consistent returns on your investment as well as easy access to your funds and is a sure-fire way to build savings towards saving towards an emergency fund. The fund is invested in Government fixed income securities, corporate fixed income securities, cash and short-term investments.

Having a low initial investment of TT$20 per unit means that creating an emergency fund will not become a Herculean task. There are no penalties or charges associated with redemptions so your initial capital remains untouched. Moreover, interest is compounded daily and credited quarterly, so you begin earning income as soon as your funds are credited to TT Income Fund.

There is also the peace of mind in knowing that there are no withdrawal penalties, no minimum holding period and easy access to your investment, essential ingredients needed to assist you in meeting the financial challenges of losing your job.

Your employer may offer a severance package, probably before you are dismissed. Be careful that you don’t fritter away this money on frivolous activities as it may have to be the only income you may have until your circumstances change. While the temptation is to become more conservative with investments, now is not the time to engage in speculative investing in the hopes of generating a quick profit to help make up for lost income.

For the young person who has gotten a severance package, consider putting your severance into the UTC’s Pension Plus, a retirement investment plan that allows the whole of the premium payable in any one year to be eligible for tax relief up to the $30,000 limit set by the Board of Inland Revenue. By doing so, an investor can supplement his/her pension plan and benefit from the tax deduction.

Your Pensions Plus is invested in the Growth and Income Fund, a medium to long term investment vehicle specifically designed to provide the investor with the potential to earn capital growth and dividend income and a price guarantee feature which affords investors protection of capital, once the funds remain invested for a minimum of three years. The money can also be invested in the UTC’s Individual Retirement Unit Account (IRUA) where there are no taxes on the capital growth in your account, so the longer the funds remain in your IRUA account, the more they grow and generate income.

You can take actions to make your transition into unemployment more manageable and less stressful for you and your family. However, a word of caution: be careful not to say anything you’ll regret to your former employer. Burning bridges will hurt any possibilities of being rehired and lessen your bargaining power for negotiating a stronger severance package or even a letter of recommendation.