Video: What You Can Do to Prepare for Job Instability
If you’re worried about the future of your job due to COVID-19, here’s what you can do to prepare.
If you’re looking for more guidance, we’ve got you covered with our guide to stock market volatility.
Dan: Hey everybody. Dan Egan from the Advice and Investing Team at Betterment here. Today I’m going to be joined by our Head of Advice, Nick Holeman CFPⓇ, that’s CERTIFIED FINANCIAL PLANNER™. Say hi, Nick!
Nick: Hey everybody.
Dan: Today we’re going to be talking about unemployment. Specifically, #1: if you’re worried about losing your job, or #2: if you recently lost your job. All of the resources and steps that you can take to get through this rough period. Nick’s an expert on this, he talks to clients all the time, so I’m really happy to have him.
All right, #1, Nick. If somebody is worried about losing their job right now, what steps should they be taking, how can they be preparing for this?
Nick: Yeah, we’re talking to a lot of clients that still have income coming in, which is a great situation to be in right now. But, layoffs have either started at their company or there are some rumblings about it, and they’re just a little bit nervous right now. Our main mantra right now is be prepared, not scared. There’s lots of things that you can do if you still have income coming in to prepare if and when things do take a turn.
One of those things is prioritize emergency fund savings. If you’re still saving for retirement, of course that’s best-case scenario. Don’t divert that unless you absolutely need to. But if you don’t have an emergency fund of 3 to 6 months’ of expenses, as a ballpark, then consider redirecting your retirement savings temporarily into an emergency fund—more liquid, lower risk, easily accessible. That’s one: prioritize emergency fund savings over everything else right now.
Number two is to start to take stock of your budget. That means separating out discretionary expenses from essential expenses, and maybe even do a trial run of what it feels like to cut back now. So, even if you don’t need to yet, it’ll make the transition a lot easier, if you’ve already kind of gotten into the groove of spending less money. And quite frankly, a lot of our clients are spending less money right now, just because restaurants, social events, a lot of those are closed, so use that to your advantage. Find some silver lining in that.
Another thing you can do is once you’ve mapped out your expenses, then calculate your runway. If you have your emergency fund and you know what your expenses are, you can figure out how long is that fund going to last you. Keep in mind it’s not just your emergency fund that you have to provide this buffer. You might (if you get laid off) have some unused sick pay or vacation days, you can file for unemployment so you’ll have some cashflow coming in, or if you’re married and maybe your spouse or partner is still working but you aren’t, that still is going to extend your runway. So just calculate that. Having an idea of how long your runway is will help put your mind at ease and help you not get into panic mode right away.
The fourth and last thing that we are recommending that clients do right now is just look up your state’s unemployment benefits. Each state has different rules, different regulations. We’ve been doing a lot of research here. Many states will seek to replace up to 50% of your income, for an average employee. Now that caps out. It depends on the state, but usually if you’re making $50,000 or less, you’ll get that 50% income replacement rate. Different states have unemployment benefits that last for different periods of time as well. Just get a sense for your state’s benefits in particular so you know how to apply, you know about how long things will last, and what income you can expect to come in from that.
Dan: Awesome. I think it’s also helpful at least for me, to know if I did lose my job, what are the steps I would need to take immediately and what resources are available to me. If somebody has recently lost their job, what’s the checklist they should be running down to deal with it?
Nick: I think the first thing is to just slow down. It’s good to jump into that mode where you want to figure out everything all at once, but we don’t want you to panic and make the wrong decisions. Examples of that would be, most likely you don’t want to raid your retirement accounts immediately. You don’t want to put all of your loans on forbearance unless you absolutely need to. We’ll talk about those options in a second, but take a second to just slow down first.
One thing we recommend doing right away is filing for unemployment. A lot of the state systems are backed up right now. Some of the websites are overloaded with traffic. It might be more difficult than usual. Try to file for unemployment as quickly as possible, especially knowing that it can take a little while for your claim to be processed, and for you to actually start receiving those unemployment checks. So do that as quickly as you can.
Another thing is if you haven’t filed your 2019 taxes yet, and you expect a refund, then go ahead and consider filing as quickly as possible so that you can get that refund. Use that cash to buffer your emergency fund, or pay for your day-to-day expenses as well.
Another thing you can do is contact the companies that you do business with in terms of loans and bills. We’ve been hearing a lot of news from power companies, utility companies, that are saying they won’t be turning off power or shutting off services in this time for late payments. Of course, ideally keep making those payments so you don’t rack up any charges or anything, but know that those options are available.
There’s a lot of new federal changes that are going on right now as well, such as student loan deferrals, federally backed mortgage deferrals as well. Keep in mind that those should be seen as last resort options, similar to raiding your retirement accounts, but it’s good to know what is out there.
Dan: Some states have outlawed evictions, you can ask for forbearance on student loan provisions to get through a period, utilities and power companies are giving sort of forbearance provisions as well, so there’s a lot you can do to reduce your monthly bills.
What about the stimulus checks? Any idea about how people should be thinking about using those?
Nick: Yeah, the stimulus checks are another great federal benefit that’s coming in. The IRS is supposed to start paying those out for the first round of individuals that will be receiving those. Most Americans don’t need to do anything to receive those checks, which is good news. However, if you haven’t filed a tax return in a couple of years, there might be some action required. You can go to irs.gov/coronavirus because they are putting out daily updates in terms of what steps you need to take—if any—to get those checks.
In terms of what to do with the checks, they are going to be about $1,200 per individual, so $2,400 for married couples, plus $500 for dependent children under age 17. That can give you an idea of what to expect in terms of the amount of the check. Keep in mind that’s going to get phased out and potentially reduced entirely for higher income individuals, but most Americans should be receiving at least some amount of a stimulus check.
In terms of what to do with that check, it’s going to be just triaging. If you need the money for day-to-day bills and food, of course use it for that. If not, then use it for your emergency fund. Continue making minimum payments if you don’t have any forbearance options available to you.
If you’re in a good spot, you’ve got an emergency fund, you still have income coming in—consider investing it. It’s a great time to consider maxing out your IRA. The deadline has been extended actually through July 15th, and more time in the market is generally better for investors in general. Keep that in mind but make sure you’ve got the other things covered first.
Dan: All right, Nick. Last question. I’m kind of curious if you’ve been speaking with any clients or have any guidance on how to use this time to position yourself well to come out of it. Should I be looking for opportunities outside my industry? Should I be looking for jobs or will the unemployment benefits make me better off? How have you been talking to people about how to set themselves up for what’s happening 2 or 3 months from now?
Nick: Yeah, great question. Unemployment benefits for many people will cover a lot of their income that they had been earning previously, especially if they had been making usually around $50,000 or less. With the CARES Act, the federal government actually increased the unemployment checks that people are going to be receiving. So that’s a nice buffer. That can give you a little bit of lead time to help find a job, get your resume in order, find out which industries you want to look in.
We’ve also been recommending that, all signs indicate that this is likely to be a relatively short-term period of unemployment until the economy recovers. Hopefully we can end the social isolation and get businesses up and running. If you’re looking to just get some income coming in, don’t feel like you need to worry about what your career’s going to be 5, 10, 15 years from now. You’re just looking for a short-term stop gap to get some income coming in to pay the bills and put food on the table.
That can feel like a lot less of a burden for you to go out there job hunting. It can free you up to be less picky in some ways. You can look in other industries that are hiring if yours is particularly affected and none of your competitors are hiring, for example. That can make things a lot easier and a lot less stressful when looking for other jobs right now.
Dan: Awesome. Anything we’ve missed? Any messages that you want to get out to people?
Nick: The last thing that I would say is I know in terms of, on the investment side, we’ve had some ups and downs. We’ve had the quickest 30% drop in history and then the best week in the S&P in like 30 years. What we’re telling all our clients is to stay the course. We’re not changing our long-term advice.
That doesn’t mean you shouldn’t be doing anything. Betterment’s rebalancing, we’re tax loss harvesting, we’re looking at potential Roth conversions, or getting out of old investments that no longer make sense because there’s less of a tax burden there. There’s lots of actions you can be taking to be proactive and take advantage of some of the opportunities that are coming out right now. One of those actions should not be drastically changing your investment plan because of short-term market performance.
Dan: It sounds like: take a deep breath, have a plan, think it through, and always be looking 4 to 6 months out in terms of your job.
Nick: Perfect summary right there.
Dan: Awesome. Thank you very much. Nick Holeman, CFPⓇ, head of our Advice Team here at Betterment.
Nick: Thanks for having me, Dan.
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