If this was television, the time would be around 10 a.m., and you'd be sitting in a darkened bar, staring into your third or fourth Scotch, wondering how to go home and tell The Spouse you've lost your job.
A bit clichéd perhaps, but a lot more plausible than the reality of 2020, the year that started with such financial promise and then devolved — is still devolving — into scenarios so increasingly bizarre we barely react to them anymore. A deadly coronavirus pandemic? Grocery shelves emptied of cleaning supplies, food and toilet paper? Stay-at-home orders. Masks no, then masks yes. Bars, restaurants, gyms, hair salons closed. A collective breath-holding. Restrictions loosened. A new surge of infections. Press replay.
"This was the year I was going to get that raise," you thought. Now it's" I'm being laid off ."
Now you have a mortgage or rent due, a car payment, maybe some children ... and barely anything in savings.
What do you do now?
First, don't panic. That's the initial advice from financial advisors Erin Nelsen, a fee-only certified planner and partner with Asset Planning in Cypress; Chris Browning, a financial analyst who created and hosts the "Popcorn Finance" and "This Is Awkward" podcasts ("Where We Discuss Finance in About the Time It Takes to Make a Bag of Popcorn"); and Louis Barajas, a fee-based certified financial planner at MGO Wealth Advisors in Irvine and author of several books, including "My Street Money," "Overworked, Overwhelmed & Underpaid" and "Small Business, Big Life."
Lots of people who started the year with steady, seemingly solid employment are now out of work due to coronavirus. The 4% unemployment rate that looked so rosy in January is now at 11% nationally and nearly 15% in California, according to the Bureau for Labor Statistics, so you're certainly not alone.
We asked Nelsen, Browning and Barajas for advice on what people should do after losing their jobs. All three agreed that the first step (aside from avoiding Scotch at 10 a.m.) is to stay away from the blame game, especially self-blame.
"It takes a huge mental toll; the fact that you've had this massive financial disruption in your life through no fault of your own," Browning said. "Give yourself some grace, and a break, because in a lot of these situations, there's nothing you could have done to make things go differently."
Browning said he tasted the poison of self-blame after he and his wife put $27,000 on their credit cards the first few years of their marriage, more than half of their household income. "I really beat myself up about that," he said. "'I went to school for this,' 'I should have planned.' ... I thought about it all the time, even at work. How could I have let things get so bad?"
He and his wife made a budget — several, actually — and ultimately paid off the debt in 2 1/2 years, but the remedy started with talking it out, he said, with his wife and a close friend, who listened without judgment. "You want someone who can be kind to you in their responses, not someone who will beat you up," Browning said.
And if you're honored to be chosen as the designated listener for an out-of-work friend and family member, Browning said it's important to remember your role is supportive listening. "Avoid grilling them with questions like 'What happened?' or — the Mom thing — 'Did you say something rude in a meeting?!'"
The biggest mistakes with money are made out of fear or greed, Barajas said. "You don't want to panic or get scared; that's when the old reptilian brain kicks in with financial knee-jerk reactions. You want to be proactive and prepare."
In other words, don't max out your credit cards while pretending everything will be OK. There's no shame here, Browning said. We're all in the same crazy boat of uncertainty. "This situation is so unprecedented, no one has been prepared for this or even experienced this in our lifetimes."
Instead of wallowing or hiding, now is the time to take a deep dive into your financial situation and make a plan, said Nelsen, who has two college-age children living at home because they both got laid off from their part-time jobs. Both her children were eligible for unemployment benefits, and they're living at home for free, but in exchange, Nelsen said she insisted that they make up budgets and save as much of their money as possible in case they're still out of work when their unemployment checks run out, which in California is after 26 weeks.
"I had them make an inventory of all their expenses and really be truthful about what's necessary and useful versus discretionary spending," Nelsen said. "With my kids, as with most people, you may in your head say something is a 'need' but it's really just a 'want.' They don't 'need' to have their Spotify subscription to live."
All three advisors recommended the free Mint budgeting app for helping people to keep track of their bank accounts and spending — "The last thing you want to do is be incurring more expenses with a budget app that charges a monthly fee," Nelsen said — but, really, the budgeting can be done with anything you're comfortable with, like an Excel spreadsheet or paper and pencil. The trick is to keep trying until you find a system that works, Browning said. He and his wife went through several budgets before they found one that stuck.
The method you use doesn't matter, the advisors said. What's important is that you take action now, before your creditors start calling and you're too depressed to get out of bed. Note also that some financial planning associations are offering free advice sessions, such as the COVID-19 financial planning services offered by the Financial Planning Assn. or the 45-minute virtual financial counseling services offered by the Financial Planning Assn. of Orange County.
And even if you haven't lost your job Browning says he makes a point of going over all his expenses and income every year to make a bare-bones emergency budget, just in case. (It's podcast Episode 193 from March.) That way if disaster strikes, he already knows how much income he'll need to cover the basics and can take steps to find additional income — even if it means delivering pizzas — to fill in the gaps.
Here's where to start:
1. List ALL your expenses
This is a critical first step to understanding what you have to spend each month to stay afloat and what you can let go, at least for now. Pull out a few bank and credit card statements and note where your money goes each month. It's the difference between fixed and variable expenses, Barajas says. Your car or mortgage payment is likely fixed unless you can negotiate something with your lender, but what you spend for food every month is variable. And be sure to check subscriptions on credit cards, such as gym memberships or those little fees for Netflix or Hulu that can add up to hundreds of dollars.
2. Look for budget breakers
People often forget to include expenses that come only annually or twice a year, but real budget busters are even sneakier, Nelsen said, like the gifts we give on birthdays or during the holidays. It's important to recognize those expenses now and decide how you'll face them. If your budget can't allow for gifts, tell people you won't be giving any this year, or that you'll be making your own, she said. "Most people would prefer that you not go into debt than receive a holiday gift from you."
3. Don't avoid the B-word
A budget can set you free because it shows you how much money you have coming in and where it has to go each month. If you have a lot more expenses than income, that's where you start trimming. What expenses can be reduced or eliminated? When you identify the bare-bones expenses and still have a shortfall, that will allow you to make informed decisions. Can I save money by moving in with a friend or relative? Can I negotiate a cheaper car payment or postpone payments on my mortgage? Should I drop data charges from my phone and just rely on Wi-Fi? These questions can best be answered when you have a clear idea of where you stand.
4. Start talking
Once you've identified your household expenses, it's critical to pull in your spouse or partner to discuss how to proceed. Budgeting is a huge source of conflict for couples, who often disagree on what expenses are discretionary, the advisors said, but those talks are easier when you have the actual spending numbers laid out before you. That's why it's critical to look at credit card and bank statements rather than guess that miscellaneous spending is around $100 a month and then discover it's actually closer to $500 and you're out of money, Nelsen said. If there is enough income to permit discretionary spending after all fixed expenses (and saving for emergencies) are covered, divide that pot evenly each month and let the partners spend it as they want, Browning said.
5. Get a letter
Contact your former employer's HR office and ask for a layoff letter stating that you weren't let go for cause or performance issues, Nelsen said. Then ask your former boss or supervisor to write you a letter of recommendation and ask your coworkers to add recommendations on your LinkedIn page.
6. Make the call
Now is the time to inform your lenders about the change in your income due to COVID-19 and see if you can negotiate a more lenient
payment plan. "If you can't make the payments, don't stick your head in the sand," Barajas said. "If you can negotiate a few months of lower payments or not paying, and the lender is in agreement, it shouldn't affect your credit score. But don't wait for them to call you."
7. Other income sources
All three advisors winced at the idea of pulling cash from retirement funds, but since the CARES Act removes the 10% penalty on early withdrawals from IRAs during the pandemic, it might be a last-ditch consideration. "It's probably better than racking up a huge credit card bill at 20% interest that you'll never get out of and digging yourself into a deeper hole," Nelsen said. Another possibility is borrowing from your 401(k), Browning said. Not all 401(k)s permit borrowing, but if that option is available, it's preferable to withdrawals that deplete your retirement funds. For instance, he said, if you have a $700-a-month car payment you can no longer afford, and you can sell the car for enough to pay back your loan, you could consider borrowing $4,000 from your 401(k) to buy a cheaper used car. Just be certain you don't end up selling your car and still owing money on your car loan.
8. What about equity loans?
If you have some equity in your home and were thinking about refinancing before the layoff, it's probably too late unless your spouse or partner can carry the new payments with his or her income. But for people in the middle of a refinance, or thinking a layoff may be coming their way, a refinance with a home equity line of credit (HELOC) could provide some emergency cash if things get tight, Barajas said. "You don't have to pay it if you don't use it, but it's there just in case."
9. What about health insurance?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) permits people to keep their group health insurance after they lose their job, but at a cost of up to 102% of the premium. It will likely be cheaper to get a health insurance policy through Covered California, the state's health insurance brokerage, which helps you find coverage you can afford. Covered California is a good option if you and your family are healthy, Nelsen said, but if family members require specialized care, be sure your new policy includes the doctors and facilities where they get treated before you switch coverages.
10. Check your help options
Now is the time to investigate what options are available for help. That includes unemployment, yes, but if you call 211 or visit your county's 211 website, such as 211LA.org, you can find a wide array of assistance available. Start filing for unemployment immediately and check out options for public assistance, housing and food. (Volunteers can also find opportunities to help through these pages.) Or maybe it's time to move in with family and friends, and share expenses there. This situation won't last forever, Barajas said. "It will probably get worse before it gets better, but we should have a vaccine next year, so be careful about making drastic decisions."
11. Get the word out
Don't be shy about sharing your situation and your job search. This is the time to tell everyone you're looking for work, the advisors say. "Tell everyone you know and post it on all your social networks — Facebook, Nextdoor, whatever. Let people know what it is you do and what kind of job you're looking for," Nelsen said, "because you just never know where a lead could come from." And if your job was in an industry that's been devastated by COVID-19 shutdowns, perhaps now is the time to reconsider your career path, Browning said, and consider what other jobs fall into your skill set.
12. In the meantime ...
If things are dire, take whatever work you can find, with the following proviso: Make sure you won't come out worse at the end with low-paying jobs that foist all the expenses on the worker, Nelsen said. You don't want to end up working for free as a delivery driver because your driving expenses take most of the money you earned or your child-care costs exceed your earnings in a warehouse. (Check out Browning's "Side Hustle" podcasts for insights into working in the gig economy.)
But know too that there's no shame in taking a temporary job outside your field, the advisors say. "My pride shouldn't get in the way of providing for my family," Barajas said. "Obviously you're going to be looking for employment [similar to the job you lost], but in the meantime you've got to do what you've got to do to tide you over."
For the record:
12:13 PM, Aug. 17, 2020: An earlier version of this story said Erin Nelsen is a fee-only certified planner and partner with Asset Planners in Cypress. She is with Asset Planning Inc.
This story originally appeared in Los Angeles Times.