by Nancy Osborne, COO of ERATE®
Sep 10, 2007 - The loss of a job ranks as one of the most stressful and devastating events in ones life. It rates right up there with death and major illness as far as its emotional impact and is tops on the list in its financial impact. Thousands of people lose their job every week and there are steps you can take to prepare yourself before this situation strikes unexpectedly and then there are steps you can take after this unfortunate event has already wreaked havoc on your life. Losing a job may not always come as a shock. If you had any hint or warning that this was a possibility, you likely would have begun preparing for it prior to the actual event, you may have even gotten a jump in your job search. However if there were no warning signs, and there was no way you could have seen it coming, you'll need extra guidance to overcome the shock and to regain your footing quickly.
The first step is to assess the current state of your finances. It is likely you have received a minimum of two weeks wages from your employer and depending upon your position, and the number of years of service to the employer, your severance package could include far more. In addition to what the employer has offered, hopefully you have funds set aside to help see you through just this type of short term cash crunch. It is recommended that you keep a minimum of 3 to 6 months living expenses in an emergency reserve account. If you have prudently followed this advice, then now is a legitimate time to tap into your reserve as this is precisely the situation it was intended for. Of course you may also apply for unemployment insurance compensation at your state's local employment service center as you will likely be entitled to this benefit if you have been let go from your job without cause. You'll want to get the ball rolling on this process as soon as possible so you can begin receiving benefits. The process involves your filing the unemployment insurance claim so that the state office can determine your benefit eligibility by sending out a form for your previous employer to complete and then an account can be established so your benefits may begin.
Next on your agenda is health insurance coverage. The last thing you want to do is to go without health coverage during this time. It may not be possible to switch health coverage to a working spouse's employer until the next enrollment period comes around, so until that time you may have no alternative other than going on COBRA (Consolidated Omnibus Budget Reconciliation Act) to utilize the plan of your previous employer until you find a new job or can switch coverage to the employer plan of the other (hopefully) working spouse. COBRA may or may not be more expensive than purchasing a policy on your own. The costs are normally based on the average age of the insured pool of employees. Whether you fall above or below that average range could determine if the expense is a costly or reasonable one for you. For those on the lower end of the age range within the company, it will likely be more costly and conversely it will be cheaper for those who are above the average age of the employee pool. The period for COBRA eligibility is typically up to 18 months but may be as much as 36 months under special conditions. The cost to you is generally what it would cost the employer to insure you under the company plan during a 12 month period (the premiums are set annually) and in addition a 2% administrative fee may also be charged to you. Another option would be to contact an insurance agent to see if they could find a carrier to provide similar coverage at a more reasonable cost.
Cutting your expenses down to the bare essentials while you are unemployed and cash strapped is of course advisable. Review all existing debts to determine your bill payment priorities, naturally health insurance and housing payments are two top contenders. It's a good idea to develop a cash conserving budget during this time and to stick to it. If you find yourself in over your head and unable to cover all of your expenses, be proactive in contacting any effected creditors to advise them of the problem and to seek out their help, they may be able to provide you with a possible extension or payment reduction workout plan. Even one late payment could have a ripple effect on the interest rates of your other debts and may reduce your credit score by as much as 75 points. So do all that you can to keep your creditors in the loop and avoid any adverse impact on your credit score during this time as it could hinder your job search as prospective employers may want to run a credit check as a condition of employment.
After first covering all of these critical financial bases, then you can free up your time and devote all of your energy to your job search, whether it's within the same field or you are going in an entirely new direction. Hopefully your search will lead you to an area with many new opportunities and employment prospects.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.
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