Dunnan on Dollars

  Personal Finance Tips from Nancy Dunnan

When The Pink Slip Arrives
12 steps for handling the news...

February 29, 2008 - No one, from mailroom clerks to top executives, is immune from loosing their job.

In fact, employers slashed some 63,000 jobs in February, the highest number in 5 years. The nation's jobless rate is now hovering around 4.8%. Those who planned to glide into retirement are cast adrift. Those on the fast track are suddenly derailed.

If you're one of the thousands of Americans who has been "let go," you face a number of key financial decisions. Ideally, you have an emergency nest egg -- three to six months' worth of living expenses -- stashed away in a money market fund or bank CDs. But even if you don't, there are many ways to stay afloat.

Before Actually Being Fired...

1) Update Your Address Book

If there are rumors floating about the office or plant and you think you might be laid off, update your rolodex or email address book immediately. Some employers give former employees only an hour or two to collect their personal items before leaving the workplace for the last time.

2) Cash In On Your Medical Expense Plan. If you've been contributing pretax money from your paycheck to a flexible spending account in order to cover unreimbursed medical bills, make an appointment to talk with your benefits officer. In many cases, money left in this plan at the end of the year goes to the employer, not to you. This is informally known as the "use it or lose it" rule. Find out how your company handles the situation when employees are let go. You may be able to use up your benefits.

When The Official Word Hits...

3) Find Out About Benefits & Get A Letter Of Reference

The Human Resources department or your boss should be able to tell you what benefits you're entitled to. Your check list should include: Severance pay, accrued vacation days, overtime, sick pay, pension benefits, life insurance and eligibility for unemployment insurance.

At the same time, ask your boss or supervisor for a letter of reference.

4) File Papers To Keep Your Health Insurance

Under the Consolidated Omnibus Reconciliation Act (COBRA), companies with 20 people or more must offer employees who are losing group health coverage the opportunity to extend their coverage at group rates. Continuation lasts a minimum of 18 months, sometimes longer.

$TIP: You must apply within 60 days of being fired and you have 45 days to make the first payment. Your company is required to contact you (in writing); however, many do not.

Although you pay the premiums, they almost always are less than if you take out your own individual health insurance policy. An exception: If your spouse has coverage, it's probably cheaper to purchase family coverage under his or her plan.

Cobra Health Plan Advice for Individuals & Small Businesses at: http://www.cobrahealth.com/ has a wealth of information.

5) Play The Guilt Card But Be Nice

If you've been a loyal worker, the company may feel guilty about letting you go. Use this factor to negotiate rather than just accepting departing perks. Try to get a better severance package, free medical coverage or use of an office, computer and phone to help you search for a new job. If you're a top level executive, you may want to hire a specialist to negotiate for you.

The "be nice" part involves writing a letter to the head of your old company. (Keep a copy for your files.) Mention how much you enjoyed working there for x number of years, that you were pleased to be part of the department or team and that you hope to reconnect in the future. This letter will not only be helpful when you give your former boss as a reference for a new job, it will also boost the likelihood of being rehired if and when the company rebounds.

6) Sign Up For Unemployment

Don't be shy about this and don't confuse unemployment with welfare. You and your employer have been funding this government benefit over the years and you're certainly entitled to make use of it. It will provide a much needed short-term financial cushion.

Apply at the nearest State Unemployment Office immediately -- you won't receive a check until all paperwork is complete and your eligibility verified. Depending upon the state, you'll need to present some of these documents:

Your Social Security card

Proof of your current address and telephone number

Recent paycheck stubs

Names, addresses & dates of employment for the last two years

And, in some cases, a statement from your company spelling out why you were let go.

The amount you receive varies form state to state, but the general formula is 50% of your weekly wage, not to exceed a statuary cap. You'll get a weekly check for 26 weeks, although when the unemployment rate is high, this can be extended for an additional 13 weeks.

7) Develop A Routine & Hang Up Your Bathrobe

Don't panic. Problems come with solutions. And despite the layoffs, there are still employers seeking employees. It may take a while to find the type of work you like, you may have to compromise somewhat or, this may be the time to shift gears and change your career.

As we go to press, there are shortages in many parts of the country in nursing, teaching, day care (for children and seniors), health care and dentistry. Continuing care and retirement communities as well as rehab centers and nursing homes need workers. Retail stores, restaurants and fast food emporiums periodically look for intelligent, English-speaking workers.

If you can repair equipment of any sort, from TVs, toasters and tractors to computers, cars and chinaware, you can find immediate work.

Don't hang out in your bathrobe. Set up a daily morning walk or jog (with a friend so you'll keep the commitment). Or, sign up for classes at a gym or your local Y. Many people keep focused and find support in morning meditation, tai chi or prayer groups. Former employees from a company often set up their own support groups; find out if this is the case with your old firm.

8) Network

Go to conventions, trade shows and meetings run by associations to which you belong. Talk to friends, family and colleagues. Don't hide the fact you are unemployed. Someone you know may know someone looking for a person with your skills and talent.

In addition to reading the want ads in your local newspaper and professional journals, consider turning to a headhunter or a placement firm that specializes in your area of expertise. Korn/Ferry International (www.kornferry.com) for example, helps executives, senior- and middle-level management people as well as college administrators and professors.

Start your search as soon as possible so you don't use up your severance pay or emergency funds.

9) Make A Realistic Budget & Stick To It

Prepare for leaner times. That means skipping non-essentials, cutting back on luxury items, eating out less, car pooling, taking the bus or walking instead of jumping into taxis. And, forget those cappuccinos-to-go at $3.75 each.

10) Be Straight With Your Kids

Tell your children you're out of work. If you try to hide the fact, they may imagine something much worse is going on -- kids always sense tension at home. Explain what happened, what steps you are taking to find a new job and what they can expect -- such as they may be going to day camp rather than sleep away; they may be going to public rather than private school. And, if they're old enough, ask them for suggestions. Involving them in a constructive, non-frightening way also teaches them how to handle change and take control of difficult situations.

11) Keep Severance Pay In A Liquid Account.

Best Bet: A money market fund or short term bank CD.

For example, ING DIRECT, an FDIC-insured online bank, is paying a variable rate of 3.40% on its "orange" savings account. There is no opening minimum and there are no fees involved. Log on to: http://www.ingdirect.com/.

For a list of high-yielding bank CDs, go to: http://www.bankrate.com/.

NOTE: If you are given the choice of taking severance in a lump sum or in periodic payments, it's usually better to opt for a lump sum so you can invest the money and start earning interest right away. If you sense that your old firm is in financial jeopardy, the decision is a no-brainer: Take the money and run -- to the bank.

$TIP: If you worked for a publicly traded company, check to see if Moody's (http://www.moodys.com/) has downgraded its bonds. If so, you can assume the company is experiencing financial problems.

12) Keep Track Of Job Hunting Expenses

Many are deductible from your taxable income under the category "Miscellaneous Itemized Deductions." 

But this being the IRS, not everyone looking for work qualifies for the deductions. You must be looking for a job in the same field in which you were working.

Among the expenses to track: recruitment and agency fees, placing an ad in newspapers and journals, transportation to/from interviews, local and long distance telephone calls and resume preparation -- typing, printing, mailing. Be sure you keep detailed records, documenting your expenditures.

A word about transportation...if you are going to an out-of-town interview, your airfare, hotel, meals, taxi and miscellaneous expenses are deductible. But don't try to turn your trip into a vacation. The IRS will be on your case.

For more details, log on to http://www.irs.gov/.

And, don't be proud. If you can't make ends meet on unemployment, take a part-time job or freelance. These "make-do" jobs often lead to full time positions.

$Tip: If you decide to freelance, be a consultant or operate your own business, look into membership in the National Association for the Self-Employed. This 20+ year-old organization offers group rate health insurance along with many other benefits including online tax advice from CPAs. Log onto: http://www.nase.org/.

- Nancy Dunnan

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If you want to suggest a column topic for Nancy, drop her a line.

Like what Nancy has to say? you might be interested in the new edition of her book:
How To Invest $50 To $5,000: The Small Investor's Step By Step Plan for Low-Risk, High-Value Investing