If you have recently lost your job, you are not alone! Inflation has skyrocketed in the United States over the past couple of years. Some smaller businesses have been unable to survive the increased expenses, putting employees out of work, while many larger companies have laid off employees to reduce their costs. If you are dealing with a job loss, you can transform what you may view as a crisis into an opportunity to protect yourself and your family. Kiplinger Magazine's Job Loss Survival Guide is a good source.
Do not dwell on the loss; focus on planning for the future. In planning proactively to address the immediate crisis and your long-term financial well-being, it is essential to assess the state of your finances. Do everything you can to maximize your resources and minimize your expenses.
Remember that some resources may be available if you were laid off through no fault of your own. Some employers may provide a severance package, and in many cases, unemployment benefits are available for a limited period to tide you over until you find a new job. Depending on state law and your former employer’s policy, a payout of accrued vacation and sick leave may also be a source of liquidity that can sustain you for a while.
In addition, create a list of everything you own and their values. Some assets—i.e., accounts and property—are more easily converted to cash than others, and as a last resort, those assets could be liquidated, and the proceeds used for living expenses. Your list should include your checking and savings, investment, retirement, cars, boats, and real estate accounts. If you have an emergency fund, you can rely on those funds first. Remember that withdrawals from checking and savings accounts have no tax consequences. That is not the case for every type of account: if you liquidate a portion of an investment account that has appreciated over time, you may have to pay taxes on any capital gains (the rate may be up to 20 percent, depending on your income and how long you have had the investment). Drawing cash out of a retirement account may result in even more tax liability (depending on the type of account and the amount withdrawn), as the amount withdrawn may be taxed as ordinary income, which could mean a rate much higher than the capital gains rate, and it may be subject to a 10 percent penalty.
You should also create a list of your debts and expenses. This will provide you with a fuller picture of your financial situation. If you have expenses that can be cut, such as streaming services, cable television, yard or house cleaning services, and other luxuries—it is wise to do so sooner rather than later. You can easily reestablish those services if you find another job quickly, but if you continue to spend money on such items, you will have less money available if your job search lasts longer than you anticipate. You can figure out creative ways to live on less (and you may decide you want to continue doing so even after you land a new job!). If you do not have a monthly budget, create one to help you minimize your expenses.
You may also be able to work with creditors if you think you will miss a payment or need to make a reduced payment temporarily. They will prefer getting a partial payment rather than no payment, and most will be open to working with you as you look for a new job. However, this may harm your credit rating, and you may have to try in the future to increase your score.
Although you may think about updating your estate plan when your life circumstances change positively—for example, getting a higher-paying job or having a child—you should also update your estate plan when you experience negative changes, such as losing a job. If your employer provides your life insurance policy, it will terminate when you leave your job. If, for example, you named your trust as the beneficiary of your life insurance policy and were relying on those funds to provide for your loved ones, you may need to review your estate plan and amend how much everyone will receive. Similarly, if you have dipped into your savings account to cover your expenses during your period of unemployment and you have an insurance policy not provided by your former employer, you may want to name both children as beneficiaries of the insurance policy instead of naming one as the beneficiary of the insurance while leaving the diminished savings account to the other.
If you do not already have an estate plan, gather your lists of accounts and property, and meet with an estate planning attorney to create a basic estate plan to protect yourself, your family, and your property. Your attorney will ask you to provide financial information to prepare for the estate planning consultation. An estate plan can protect your accounts and property by minimizing expenses and taxes—leaving more for your family—while ensuring your wishes are followed.
State law determines who will inherit your property and accounts without an estate plan. A will or trust lets you choose your beneficiaries and what you want each one to inherit from you. Certain types of trusts can protect your assets from creditors if the trust is established before any creditors’ claims arise. You can also specify in your will or a separate document whom you would like to be the caregiver of your minor children if you are too sick to care for them or if you pass away. Your estate plan should also include important documents such as powers of attorney to authorize individuals you trust to make medical or financial decisions on your behalf if you cannot do so and a living will to guide how you want things to be managed if a medical crisis occurs.
Most importantly, an estate plan provides you and your family with the peace of mind of knowing that if anything happens to you, they will not have to deal with the possibility of family conflicts and tough decisions during an already stressful time. An estate planning attorney can help you create a basic plan that you can afford now; if you choose, you can add it to your plan once you have found a job. We are here to help, so please give us a call to schedule a consultation.
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