Good morning, all!
The topic of transition has come up a lot among friends recently.
It’s certainly less fun than other topics I could post about, but plenty important, and perhaps all too familiar to those of us who can remember the financial crises of the last decade, and the rough spells in unemployment that followed.
Here are the steps that I would take in such a situation.
The single most important thing you can do to get in a good position is to give yourself plenty of time so that you’re not rushing around at the last minute
Things that are always a good idea take on increased urgency during times of transition.
If you’ve been keeping an emergency fund, defend it with your life when you feel uncertainty coming your way. And if you haven’t been keeping an emergency fund, cut back on expenses aggressively while still employed in order to build one up.
When it comes to finding your next job, it’s always a good idea to keep networking — painful as it may feel sometimes — even while still employed. Networking meetings over coffee feel like much more of an exchange of ideas rather than one person trying to do the other a favor when both parties are employed. Also, I’ve always believed that the best time to add a job to your resume is when you start working at it because you can still access the job posting and all of your qualifications for the position are still fresh in your mind since you just worked so hard at describing them to land the job.
Get your budget under control
Because both your income and expenses are likely to change a great deal, it’s very important to take a fresh look at your budget during times of transition.
After all, the whole point of an emergency fund was to weather these sort of storms, so it’s important that this fund and your budget correspond to each other. One simple formula that some people use is to calculate the difference between their expected monthly expenses while unemployed and expected monthly income while unemployed, then multiplying to get six months worth of this difference.
Monthly expenses should be lower in most aspects when compared to normal times since you’ll be cutting down on the daily spend of commuting, eating out, and the wear and tear on your clothes, but don’t forget to factor in the costs you’ll incur while looking for jobs. Furthermore, health insurance during this period can cost more than you think if you don’t have some ready alternative like that provided by a spouse’s employer. Check out a buddy’s post on his own search for health insurance while unemployed at Sunk Costs are Irrelevant which discusses COBRA and insurance through the marketplace set up by the Affordable Care Act. Your monthly income may include money you get from collecting on unemployment insurance, taking on odd jobs, or any passive income streams you’ve already got going.
In terms of assets, you should get acquainted early on with your options for rolling over your 401(K) if your employer offered one. I personally think the best option is to roll it over into an IRA, but leaving it with your old employer to roll it over into your new employer’s plan isn’t bad either. Another option that I’m not so hot on is taking the money out of your 401(K) in cash. Not only will you lose the tax advantages of your plan and take money away from the older version of you, you’re also likely to face a 10% “additional tax” (i.e. a penalty) for doing so before the age of 59 1/2. Of course, if you’ve exhausted other options for cash, it may be something you need to do, so make sure you know the exceptions the IRS offers, which include “part of a series of substantially equal periodic payments” and those made “after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.”
Keep a good attitude
Finally, I think it’s also very important that you maintain a positive outlook. The changes you’re facing likely have much more to do with macro factors outside of your control than with you specifically, meaning that many people across the country and around the world are going through the same uncertainty you are.
This is all to say that you’re a competent worker who shouldn’t doubt your value because of the hurdles you’re facing.
And one great way to maintain a positive outlook is by doing a little bit every day to advance, whether it’s networking or applying to get closer to the job or by taking on a little side work to make a little extra money. As always, you may be surprised to find that those little steps add up to a lot of progress over time.
Anyhow, thanks for reading and enjoy the rest of your week.