Lost Your Job? 9 Things To Do Before Drawing From Your Emergency Fund
Losing a job is one of the most stressful things you can experience–especially right before the holidays.
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While it may be tempting to start drawing from your emergency fund immediately, according to experts, there are other steps you can take to ensure a smarter approach to managing your finances.
Here are some things to do before dipping into your savings.
Assess Your Financial Situation
“To get the most out of your emergency fund, you gotta start by evaluating your financial situation,” said Linda Chavez, founder and CEO of Seniors Life Insurance Finder.
This includes calculating how much money you have in savings, any outstanding debts or payments and your monthly expenses. By doing so, Chavez says you’ll have a better understanding of how long you can sustain yourself without an income and how much you can rely on your emergency fund.
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Create a Budget
Once you have assessed your financial situation, Chavez says it’s important to create a budget. “This will help you determine how much money you need to cover your essential expenses and how much you can allocate towards non-essential expenses.”
By having a clear budget in place, you can stretch your emergency fund for as long as possible until you are able to find a new job.
Experts say that taking steps to reduce your expenses can also make it easier to afford all of your essentials every month, so analyze your budget for any unnecessary costs you can eliminate.
“You might need your emergency fund after a job loss, but one thing to do before going that route is to slash expenses,” said David Bakke, finance expert at Dollar Sanity.
For example, subscription services can add up to a surprising amount each month, and canceling these can therefore greatly reduce the number of bills you have to pay. Bakke adds that your travel budget should be zero, as well as entertainment, and clothing.
“Basically, your spending should come down to monthly bills and other necessities like groceries and that’s it,” he said. “If you’re lucky, you might not need to touch your emergency fund at all.”
Reach Out to Creditors
“If you just lost your job, call your mortgage lender, the company you have your car note with and even your landlord if applicable,” Bakke urged.
“These folks — and possibly others — are more than willing to work with you, but you have to pick up the phone,” he said. “Clearly and honestly explain your situation and see what you can work out. That might alleviate the need to deplete your emergency fund.”
Look into Government Assistance Programs
Depending on your country or state, there may be government assistance programs available to you if you’ve lost your job, said Chavez. She notes that these programs can provide temporary financial support or also help with finding employment.
It’s important to research and apply for any relevant programs that you may qualify for, she highlighted, as they can provide additional resources during this difficult time.
Consider Resume Building
After losing your job, experts advise that it’s essential to update your resume and begin searching for new employment opportunities.
“There are many online resources available for creating a professional resume and connecting with potential employers,” said Chavez.
Additionally, she says you can also reach out to your network or use recruitment agencies for assistance in finding a new job.
Skyler Fernandes, founder and general partner at Venture University, recommends creating a comprehensive toolkit for your job-loss emergency. This includes updating your resume, drafting a templated cover letter and organizing a file of professional recommendations.
“Having these tools ready streamlines the job search process and positions you as a quick-response candidate.”
Use Job Displacement Services
Many companies offer job displacement services as part of their severance packages. Fernandes explained that these services often include career counseling, resume workshops and networking opportunities.
“Take full advantage of these resources, as they are often underutilized,” he noted. “They not only enhance your job search skills but can also open doors to unforeseen opportunities.”
Tax Efficiency in Severance Negotiations
When negotiating your severance package, Fernandes advises considering the tax implications.
“Structuring components of your severance, such as a portion allocated to career counseling or education, can potentially be tax-deductible,” he explained. “Seeking guidance from a tax professional during negotiations can help optimize your severance package.”
Explore Bridge Loans and Nonprofit Support
Similarly, Fernandes recommends investigating bridge loans offered by financial institutions. “These short-term loans, often designed for unexpected financial challenges, can provide a temporary financial cushion,” he said.
Additionally, some nonprofit organizations offer financial assistance or grants specifically for individuals facing job loss. While these resources might not be widely known, Fernandes says they can be valuable in bridging financial gaps.
Consider Alternative Sources of Income
While searching for a new job, it may also be helpful to consider alternative sources of income. This could include freelance work, part-time jobs or selling items you no longer need. Experts say these additional streams of income can help supplement your emergency fund and ease financial strain while you’re unemployed.
Chavez emphasized that it’s important to be proactive and resourceful when using an emergency fund after job loss. By following these steps and utilizing the available resources, you can effectively manage your finances during this challenging time and hopefully find new employment soon.
Bakke agreed, saying, “If you’ve lost your job, before touching your emergency fund, start a side gig,” he explained. “There are so many options at your disposal that can result in almost immediate income that I can’t even list them all.
“Start by selling no longer needed stuff on eBay or Amazon, try something like pet- or babysitting, and you can even consistently donate plasma for a bit of consistent revenue. There are plenty more.”
Ultimately, experts emphasize that supplementing your income can alleviate the strain on your emergency fund and provide a financial bridge during this transitional period. By diversifying your income streams, you don’t just enhance your financial resilience, but you also gain valuable skills and experiences.
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