3289: 5 Ways To Survive a Layoff by Jeff Rose of Good Financial Cents on Internal Locus of Control

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[00:00:26] [SPEAKER_03]: This is Optimal Living Daily, 5 Ways To Survive a Layoff by Jeff Rose of GoodfinancialSense.com

[00:00:33] [SPEAKER_03]: and I'm Justin Malik.

[00:00:35] [SPEAKER_03]: Welcome back, this is a Sunday bonus episode where I share an extra episode from the Optimal

[00:00:40] [SPEAKER_03]: Living Daily Network.

[00:00:42] [SPEAKER_03]: And today's comes from Optimal Finance Daily, please do subscribe to or follow Optimal

[00:00:46] [SPEAKER_03]: Finance Daily wherever you are listening to this to keep all of this going, it really

[00:00:50] [SPEAKER_03]: helps a lot.

[00:00:51] [SPEAKER_03]: But for now let's get right to the bonus episode and Diana's commentary as we optimize your

[00:00:56] [SPEAKER_03]: life.

[00:01:01] [SPEAKER_02]: 5 Ways To Survive a Layoff by Jeff Rose of GoodfinancialSense.com

[00:01:07] [SPEAKER_02]: As unemployment numbers continue to rise, many employees are stressed about whether they'll

[00:01:12] [SPEAKER_02]: have a job next week or not.

[00:01:14] [SPEAKER_02]: Some have already lost their jobs and are scrambling to find new employment.

[00:01:18] [SPEAKER_02]: In this time financial planning is crucial.

[00:01:21] [SPEAKER_02]: This is a time when people are desperately in need of guidance.

[00:01:25] [SPEAKER_02]: If you think you're about to encounter a layoff, you need to be focusing your attention

[00:01:29] [SPEAKER_02]: on what can be controlled.

[00:01:31] [SPEAKER_02]: Cutting expenditures, figuring out emergency funds, evaluating how to replace lost benefits

[00:01:37] [SPEAKER_02]: and making a game plan for the job search.

[00:01:40] [SPEAKER_02]: Number 1 Save Emergency Cash For those that are still employed but the

[00:01:46] [SPEAKER_02]: future of their job is uncertain, I would encourage them to have at least 12 months of savings

[00:01:51] [SPEAKER_02]: in cash.

[00:01:53] [SPEAKER_02]: Unfortunately, many will not have enough.

[00:01:55] [SPEAKER_02]: But if they're still employed and the emergency funds are not there, tapping into their 401K

[00:02:01] [SPEAKER_02]: might be a viable option.

[00:02:03] [SPEAKER_02]: I know what you're thinking.

[00:02:05] [SPEAKER_02]: Tapping into your 401K usually goes against all that I stand for.

[00:02:09] [SPEAKER_02]: And with this dismal market it might be a dangerous move.

[00:02:12] [SPEAKER_02]: But if they become unemployed that option might now be available to them.

[00:02:17] [SPEAKER_02]: Typically, if you're still employed you're allowed to borrow up to half of your 401K balance

[00:02:22] [SPEAKER_02]: up to a maximum of $50,000.

[00:02:25] [SPEAKER_02]: Running these numbers you can guesstimate the period of how long you think will take

[00:02:29] [SPEAKER_02]: you to find a new job and then how much you would need to borrow to get you by

[00:02:33] [SPEAKER_02]: until the new job is found.

[00:02:35] [SPEAKER_02]: If you borrow from your 401K while you're still employed then you avoid the 10%

[00:02:40] [SPEAKER_02]: withdrawal penalty.

[00:02:41] [SPEAKER_02]: Sure, there's some speculation in this move but if you're in a high demand field

[00:02:45] [SPEAKER_02]: you may be able to use this move to your advantage.

[00:02:48] [SPEAKER_02]: Warning, if you do this be sure to double check with your employer when you are due

[00:02:53] [SPEAKER_02]: to pay it back.

[00:02:55] [SPEAKER_02]: It tends to vary by employer but it could be due back immediately within 60 days

[00:02:59] [SPEAKER_02]: or some period greater.

[00:03:02] [SPEAKER_02]: Number two, don't pay off debt.

[00:03:05] [SPEAKER_02]: Another common misconception after being laid off is that most people want to take

[00:03:09] [SPEAKER_02]: their savings or take their retirement savings and pay off debt such as credit

[00:03:13] [SPEAKER_02]: cards or even the 401K debt.

[00:03:15] [SPEAKER_02]: But in this type of market paying off debt should not be the priority especially

[00:03:19] [SPEAKER_02]: if you're unemployed.

[00:03:21] [SPEAKER_02]: The priority is to keep your savings intact and make sure that you have

[00:03:25] [SPEAKER_02]: plenty of cash on hand.

[00:03:26] [SPEAKER_02]: Sure, credit card debt is bad but just focus on making the minimum payment

[00:03:30] [SPEAKER_02]: until you get your job situation in check.

[00:03:33] [SPEAKER_02]: Number three, focus on crisis budgeting.

[00:03:36] [SPEAKER_02]: If you're used to shopping every weekend or eating out every other night at fancy

[00:03:40] [SPEAKER_02]: restaurants then most likely those changes are just around the corner.

[00:03:44] [SPEAKER_02]: You need to sit down and seriously hammer out a budget of things that you need

[00:03:49] [SPEAKER_02]: and things that you don't need.

[00:03:51] [SPEAKER_02]: You may even consider working out two budgets, one for while you're working

[00:03:55] [SPEAKER_02]: and one for while you're not working.

[00:03:57] [SPEAKER_02]: So that way you can truly see how much you're spending per month.

[00:04:00] [SPEAKER_02]: And then you can contemplate whether you can go on a cheaper cell phone plan

[00:04:04] [SPEAKER_02]: or cut your cable bill services.

[00:04:06] [SPEAKER_02]: Sometimes adding that extra payment per month might not seem like a big deal

[00:04:10] [SPEAKER_02]: but $50 here and $50 there will surely add up especially on a limited budget.

[00:04:15] [SPEAKER_02]: Also to knowing which expenses you absolutely must cover

[00:04:19] [SPEAKER_02]: will help you realistically search for your future job.

[00:04:23] [SPEAKER_02]: Number four, replace lost benefits.

[00:04:26] [SPEAKER_02]: In the aftermath of a job loss people should take stock of what benefits

[00:04:30] [SPEAKER_02]: have been lost, which ones you're entitled to by law,

[00:04:32] [SPEAKER_02]: which ones may be portable, how to continue health care coverage,

[00:04:36] [SPEAKER_02]: especially if there are dependents.

[00:04:38] [SPEAKER_02]: Typically employees are eligible to keep the same coverage through Cobra

[00:04:42] [SPEAKER_02]: for at least 18 months, but they may have to pay 102% of the cost

[00:04:46] [SPEAKER_02]: of their insurance premium.

[00:04:48] [SPEAKER_02]: If their premium has been subsidized by their employer

[00:04:50] [SPEAKER_02]: then that cost would be a rude shock.

[00:04:53] [SPEAKER_02]: Cobra can often be a good bridge choice

[00:04:55] [SPEAKER_02]: but it ends up being a health benefit.

[00:04:58] [SPEAKER_02]: Families paying $200 a month for insurance under Cobra

[00:05:01] [SPEAKER_02]: it could be $1,000.

[00:05:03] [SPEAKER_02]: Luckily the government just passed a new law concerning Cobra benefits

[00:05:07] [SPEAKER_02]: that qualifying people will only be responsible to pay 35% of the benefit.

[00:05:12] [SPEAKER_02]: This comes at a time that should be very helpful to many who are facing layoffs ahead.

[00:05:17] [SPEAKER_02]: Many employers offer life insurance, long-term care insurance,

[00:05:20] [SPEAKER_02]: disability policies and they may be portable as well.

[00:05:24] [SPEAKER_02]: For another person or one who is not in good health

[00:05:27] [SPEAKER_02]: ability to take over the payments on an existing $100,000 life insurance policy

[00:05:32] [SPEAKER_02]: may save the worry of having to find another carrier.

[00:05:35] [SPEAKER_02]: It's better to keep it for a few months

[00:05:37] [SPEAKER_02]: to make sure they don't need it and drop it later.

[00:05:40] [SPEAKER_02]: Number five, consider a career transition.

[00:05:44] [SPEAKER_02]: Many people will be forced by an unforeseen job layoff

[00:05:47] [SPEAKER_02]: to reassess what they want in their lives

[00:05:49] [SPEAKER_02]: and what is meaningful to them.

[00:05:51] [SPEAKER_02]: They may have to craft resumes, cover letters for the first time in years

[00:05:54] [SPEAKER_02]: and feel at a loss especially if they're switching to a new career path

[00:05:58] [SPEAKER_02]: which is in an unfamiliar field.

[00:06:00] [SPEAKER_02]: If you haven't jumped on the social media bandwagon, it's time.

[00:06:04] [SPEAKER_02]: Consider Facebook, LinkedIn, Twitter and other social media sites

[00:06:07] [SPEAKER_02]: to reconnect with old networks and also create new ones.

[00:06:11] [SPEAKER_02]: The more people that know your situation the better.

[00:06:13] [SPEAKER_02]: Also consider starting a blog to showcase your talents.

[00:06:21] [SPEAKER_02]: You just listened to the post titled Five Ways to Survive a Layoff

[00:06:24] [SPEAKER_02]: by Jeff Rose of GoodFinancialSense.com

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[00:07:42] [SPEAKER_02]: It goes without saying that the best time to prepare for a layoff

[00:07:45] [SPEAKER_02]: is while you're comfortably employed.

[00:07:48] [SPEAKER_02]: Not only will you be prepared savings-wise,

[00:07:51] [SPEAKER_02]: but it can be helpful to practice living on a bare-bones budget

[00:07:54] [SPEAKER_02]: before it's necessary.

[00:07:57] [SPEAKER_02]: I've found this to be extremely useful

[00:07:59] [SPEAKER_02]: because self-imposed restriction allowed me to grow

[00:08:02] [SPEAKER_02]: the frugal muscles that still serve me today.

[00:08:06] [SPEAKER_02]: If that restriction was forced on me due to a loss of income,

[00:08:09] [SPEAKER_02]: I think the negative emotions surrounding that

[00:08:12] [SPEAKER_02]: would have affected my creativity and resourcefulness

[00:08:15] [SPEAKER_02]: in getting my needs met.

[00:08:16] [SPEAKER_02]: I liked the advice here to have a 12-month emergency fund.

[00:08:20] [SPEAKER_02]: It's often recommended to have 3-6 months of expenses on hand,

[00:08:24] [SPEAKER_02]: but this has never felt like enough to me personally.

[00:08:27] [SPEAKER_02]: Another benefit for holding 12 months is that I also use this stash

[00:08:31] [SPEAKER_02]: as my sinking fund for things like home and car repairs.

[00:08:35] [SPEAKER_02]: But I was surprised to see the advice I'm borrowing from your 401k in this article.

[00:08:40] [SPEAKER_02]: I've just had it drilled into my head that this is a really bad idea.

[00:08:44] [SPEAKER_02]: Obviously, if you're backed into a corner with no other options,

[00:08:47] [SPEAKER_02]: it is what it is,

[00:08:48] [SPEAKER_02]: but I would be inclined to exhaust every other option before doing this.

[00:08:54] [SPEAKER_02]: I think probably the biggest reason this isn't a great option

[00:08:56] [SPEAKER_02]: if you're going to lose your job soon

[00:08:58] [SPEAKER_02]: is that job loss typically triggers a requirement to pay back the loan faster,

[00:09:03] [SPEAKER_02]: usually by the due date of your next tax return.

[00:09:06] [SPEAKER_02]: And if you default, it's considered a withdrawal,

[00:09:09] [SPEAKER_02]: so now you have to pay taxes and penalties on that money.

[00:09:12] [SPEAKER_02]: This to me is the nuclear option if I was absolutely desperate.

[00:09:17] [SPEAKER_02]: However, Jeff makes a great point about paying off debt here.

[00:09:20] [SPEAKER_02]: A loss of income warrants putting debt payoff on pause,

[00:09:24] [SPEAKER_02]: and the goal switches to not getting into more debt

[00:09:27] [SPEAKER_02]: and controlling the burn rate on your savings.

[00:09:30] [SPEAKER_02]: And that should do it for another edition of Optimal Finance Daily.

[00:09:34] [SPEAKER_02]: I'll be back tomorrow as usual,

[00:09:35] [SPEAKER_02]: so I'll see you there on the Friday show where your optimal life awaits.