How To Manage Your Finances During a Layoff

The Current State of the Job Market and Unemployment

The employee-driven job market of 2021 and 2022 – with job openings plentiful and workers scarce – has since given way to a much tighter labor market. The unemployment rate hit a two-year high in February 2024, and wage growth has slowed considerably, according to a report from J.P. Morgan. 

Nearly 85,000 job cuts were announced in February, the highest in that month since 2009, according to a report from the consulting firm Challenger, Gray & Christmas. 

The number of unemployed people also increased to 6.5 million in February 2024, according to the Bureau of Labor Statistics (BLS), while hire rates remain lower than in 2023. 

The tightening labor market, coupled with rising operating costs and inflation, has led many companies to resort to layoffs as a means of cutting expenses. As a result, more workers are finding themselves unexpectedly unemployed and forced to navigate the challenges of job loss.

The Very First Things To Do After Being Laid Off

If you find yourself among their ranks, we’ve compiled the following roadmap in consultation with industry experts to help you navigate life after a layoff.

Connect With Your HR Rep

Maintaining a single point of contact with your now-past employer can help streamline any questions or concerns you have exiting your position, our experts aid. Gain a clear understanding of your separation terms in writing or via email. Direct any questions about severance, pending compensation, or vacation time to your contact for clarification. Determine when your health insurance benefits officially end and how to deal with your retirement account.

Line Up Health Insurance

The Consolidated Omnibus Budget Reconciliation Act (COBRA) grants previous employees the right to continue with the same health insurance plan for a certain period after employment ends. 

However, doing so can place the burden of additional costs on your shoulders, especially if your past employer was paying the administrative or account maintenance fees. Individuals who waive this option may find lower-cost healthcare coverage through an Affordable Care Act plan, by joining their spouse’s plan or through Medicare or Medicaid.

Re-evaluate Your Retirement Plan

If you chose to open and contribute to a 401(k) through your previous employer, it’s time to consider your options for that money. 

If you decide to leave the money in the retirement account, you may be liable for any account management fees previously paid by your employer. If you choose to withdraw the funds, you’ll pay a 10% penalty if you’re under 55 years old, and you must claim it as taxable income for that year. 

However, many move their retirement savings to a new 401(k) at a new employer or roll the amount into an IRA for maximum flexibility. 

File for Unemployment 

Laid-off workers may experience a decrease in income, but applying for unemployment insurance benefits can help soften the blow. In most states, you can file for unemployment the day your contract is terminated, provided you’re eligible based on state and federal requirements. 

Most states allow you to apply for unemployment online, over the phone, or by stopping by in person. Once you complete your unemployment claim paperwork (accuracy is vital to avoid delays), you should receive your first unemployment check within a few weeks. 

Reconfigure Your Budget

Until you find a new job, it’s time to take stock of your monthly expenses and the money in your financial accounts. 

“Try to save up some money for emergencies,” said Jay Walker, an associate professor in the economics department at Old Dominion University. “I’ve heard that it’s a good idea to have enough to cover 3 to 6 months of expenses, but if you’re starting from scratch keep it simple and say $1,000.”

If you’re particularly concerned about making loan payments, talk to your creditors about your situation, as they may offer an extended grace period until you find steady work. 

With more free time, consider taking up a side hustle to earn extra income until you can find another full-time job. Although you should balance your earnings with unemployment benefits, a strong side hustle can help reduce the stress surrounding your financial predicament. 

If you place your earnings in the best high-yield savings accounts, you can stay proactive about future layoffs or other income loss and build a small nest egg. 

Put Your HSAs and FSAs To Use 

If you’re unemployed and paying for health insurance through COBRA, you may be able to use your Health Savings Account (HSA) funds to cover your insurance premiums, according to the federal government. 

However, when your employment termination is finalized, you lose access to your Flexible Spending Account (FSA) funds. While you can maintain your HSA balance like any other investment, it’s best to use your remaining FSA funds before your termination is finalized. 

Search for a New Position

Tempting as it might be to jump on job boards, allowing yourself time to acclimate to your new circumstances can prove beneficial.

 “It is important to not be too optimistic about how long it will be until you return to work,” Walker said. “During economic downturns, it is more difficult to find a job with fewer openings and more applicants.” 

Now is as good a time as ever to revamp your resume, invest in additional training and certifications or readjust your course entirely.

The Current Job Market Outlook

Job seekers relying on the level of worker mobility rampant a few years ago are likely to experience changing market conditions. More than 34 million Americans quit their jobs in 2023, according to the U.S. Chamber of Commerce, but hiring rates have exceeded quit rates since November 2020. 

February 2024 alone saw 9.5 million job openings and 6.5 million unemployed workers, the Chamber reported. Yet the 62.5% labor force participation rate seen in February is down from 63.3% four years ago and from 67.2% in January of 2001. 

The prevalence of layoffs further reinforces the balance of give-and-take tipping in favor of employers. However, many prospective applicants have re-evaluated their priorities in seeking a new position. According to a May 2022 survey by the U.S. Chamber of Commerce, nearly half of participants aren’t willing to accept a position unless it’s remote. Of those surveyed, over a quarter say there isn’t a need for them to return to work at all. 

Cost of Living Is High

The Consumer Price Index (CPI) from the U.S. Bureau of Labor Statistics shows that the inflation rate rose from to a high of 9.2% in June 2022. That rate began to fall significantly beginning in 2023 but remains above 3% in spring 2024. Many Americans felt the pinch most when tallying their housing costs and grocery bills. 

The percent change in the CPI for shelter peaked at 8.2% in March 2023, but January 2024’s 6% change isn’t far behind. 

Data from the United States Department of Agriculture’s (USDA’s) Economic Research Service (ERS) shows a 25% increase in the all-food CPI from 2019 to 2023, surpassing the simultaneous 19.2% increase in all-items CPI.

Understanding the Psychological Effects of a Layoff

The financial loss associated with a layoff often overshadows the emotional impact individuals must grapple with after being laid off. It’s normal to experience a mix of emotions, from anxiety and anger to fear and loss of self-esteem. Some may even be tempted to find fault within themselves or their actions, but the truth is that layoffs often occur due to reasons beyond one’s control.

 “A layoff is entirely different than being fired,” said James Bailey, a Hochberg Professorial Fellow of Leadership Development and professor of management at George Washington University. “Being fired means bad performance. Being laid off means your [job] has been replaced or is no longer necessary.”

In addition, employees who weren’t dismissed may carry survivor’s guilt and the dreaded uncertainty of not knowing if their jobs will be the next victims of downsizing, according to a report from Bentley University. 

A recent study from researchers at the University of Maryland and the University of Georgia examined the relationship between financial worries and psychological distress. It uncovered findings supporting social stress theory. In a nutshell, this theory hypothesizes that those with lower incomes have limited access to the resources necessary to combat stressors and their effects, which can increase the risk of psychological distress. 

During these challenging times, remaining close to your support system, including professional assistance, can ease the transition into your next endeavor, the experts we spoke to said. 

Strategize with friends and family about how you can better manage your finances while taking opportunities to express gratitude and appreciation. Focus on starting fresh with a new perspective that could lead to experiences potentially unavailable to you without your recent job loss. 

Our Conclusion

Layoffs are an unfortunate reality, but that hardly lessens their jarring effect on employees. However, recognizing what you can control after being laid off — mainly your finances — can help you maintain a steady course until the next opportunity. 

View the outcome of your interviews through the lens of the current employer-centric job market to separate business from personal. While you shouldn’t overlook the emotional aspects of getting laid off, rest easy knowing that you’re doing what you can to maintain the status quo and confidently embrace whatever lies around the corner.

Our Experts

Jay Walker received his B.S. in Economics and Finance from Arkansas Tech University and a MBA from the University of Mississippi. For five years after receiving his MBA he worked professionally as an analyst in the insurance and retail industries. Following the receipt of a PhD in Economics from the University of Memphis in 2012 he spent five years in western New York state at Niagara University prior to joining Old Dominion University in Fall 2017.

James R. Bailey is a professor of leadership development at the George Washington University School of Business (GWSB) and a fellow in the Centre for Management Development at London Business School. He has taught at the University of Michigan, New York University, IMD, and the Helsinki School of Economics. Dr. Bailey is the recipient of several teaching distinctions, including four GWSB Outstanding Faculty Awards.