September 5th, 2014

Surviving job loss

 

Losing a job is often traumatic, but it doesn’t have to be a financial disaster or lead to ruin. 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.

Getting laid off is never happy news.  It stings to hear you’re not needed anymore. It’s painful to pack up your belongings and leave a place you have become attached.For many of us, what we do for a living is intertwined with our identity and self-esteem, as a result, abruptly separating from a job is extremely difficult.

No hasty decisions
In times of such stress, it’s easy to make hasty financial decisions that turn out poorly and they can easily come back to haunt us with negative consequences. 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. Don’t make any financial decision until you’ve worked out a realistic plan for dealing with your reduced income.

To balance expenses with your changed financial status, it would be wise to take a defensive position such as deferring any major purchases you were planning (that boat cruise), refinancing your mortgage, shopping in bulk to reduce costs, curbing the appetite for 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 and derail 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 subscriptionsinto theTT Income Fund, a short term investment vehicle (6months -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  an emergency fund.  The fund is invested in Government fixed income securities, corporate fixed income securities, cash and short-term investments.

Your employer may offer a severance package, probably before you are dismissed.No matter the amount, be careful that you don’t fritter away this money on frivolous activities as it may have to be the only source of income you may have until your financial circumstances change.

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. Consider also 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 IRUAaccount, the more they grow and generate income.

You can also take actions to make your transition into unemployment more manageable and less stressful for you and your family: if your children are in private school, you may have to consider putting them in public schools, consider selling one vehicle if you own two or providing your children with home-cooked meals instead of “lunch money”.This is also a time to gain perspective and prioritize what is important. Do you really need that gourmet pizza that you love so much? Is it necessary to buy that new dress right away?  Resolve to stop all non-essential spending immediately.

In the immediate aftermath of losing your job, it would also 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 will not only help you assess your unemployment situation and suggest strategies for conserving your financial resources but most importantly, help you avoid costly mistakes that could harm your personal finances and your ability to find a good job.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.

Leverage your skills
Even with losing a job, the rules of financial planning apply. Budgeting and managing your expenses can help you stay afloat and help you navigate out of a perilous situation. While job loss presents a hurdle to achieving your financial goals, it may actually be a catalyst for evaluating your long-term plans. Reflect on your talent or skills that can be put to use in helping to earn an income. Take a look at your skills to see what can be leveraged as a tool to earn income.There is opportunity in disaster and this may be a way for your entrepreneurial flair to flourish.

However, a word of caution: be careful not to say anything you’ll regret about your former employer. While they may have given you the pink slip, try your best and leave without any animosity. Resist the urge to tell your boss what you truly think of him or her. 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.

Leaving a job is a painful experience, but it exposes you to a world of opportunities you may have otherwise overlooked. It’s one of the few times in your life when you can re-evaluate your career. This is the time to take inventory of your skills, strengths and talents. What may appear as a catastrophe could be an avenue for charting a new course.