Faced with job loss, would you circle the wagons or hit the road?
Laid off in November from a professional credentialing association in a downsizing wave, Michael Herndon spent nearly a month traveling in Europe, then visited family for the holidays and took another trip to Mexico.
He’s been job-hunting along the way and has already turned down one offer.
“I didn’t want to take a job I wasn’t excited about,” said the 37-year-old Washington, D.C., resident, who has worked as a government-relations manager and hopes to move to an international organization.
Now into his fifth month of joblessness, he’s cautious about spending but still not panicked. He declined a $100 fundraising dinner, but still treats himself to regular coffee-shop visits, where he recently rubbed elbows with someone who offered some leads.
Such a cavalier attitude helps Herndon stay positive through the process. It was made possible by a generous five-month severance package, and his own emergency savings of six more months’ expenses. He built the nest egg during his years with the association–its mission was financial planning.
Herndon is single and can’t rely on a spouse’s income to carry him through the transition. But having no dependents freed him from having to jump at the first offer, which he hopes will set him up with a better job in the long run.
Responses to financial crises vary widely, even among people in relatively similar circumstances, and there’s no single “game face” for managing money through a job loss, experts said.
Since Jennifer Stone, 32, was laid off in January, the Denver communications manager has stopped all dry-cleaning services and shopping for work clothes, though she still goes out with friends. She “pays” herself on the first and 15th of the month, withdrawing money from her severance just as she did when she was on the payroll, a move designed to preserve structure in her finances, she said.
A New York public relations executive who asked that her name not be published is using frequent-flier miles built up during her working years to finance social and networking trips while between jobs.
Like Stone and Herndon, the New York woman took her severance in a lump sum instead of staying on the payroll.
Taking lump sums can mean giving up some health or other company benefits, but it allows workers to collect jobless benefits sooner, notes Clare Stenstrom, a New York financial planner who spoke at a recent Citigroup conference on managing finances during a job loss.
Timing is a huge factor here, Stenstrom said. It may be worth stretching out severance pay if it brings you to a point of vesting in a pension plan, for example, and taking the lump sum can sometimes accelerate income in a given year and result in a nasty tax bite.
Other job-transition money strategies aren’t so intuitive, and may be worth considering.
For example, don’t be overcome by a wave of fiscal conservatism when it comes to credit cards and home-equity lines, said Rene Nourse, a planner and broker with Citigroup’s Smith Barney unit who participated in the recent conference. The free call-in session was hosted by Citigroup’s Women & Co. division, which provides financial education and services. Details of other planned conferences can be found at its Web site (www.womenandco.com).
When a layoff is first announced, immediately apply for a new, low-interest credit card or equity line, Nourse said. It will secure a line of credit at rates based on your working salary and provide an emergency cushion.
(Of course, if you have a spending problem that worsens with stress, this strategy isn’t for you.)
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If bills are piling up, talk to creditors directly. Having credit agencies consolidating your debt can result in faster credit downgrades, Stenstrom said.
You may also find bargains in unlikely places. Check with your mortgage company to see if your loan carries job-loss provisions. And ask your benefits department if your life-insurance and long-term disability policies can be transferred to you as an individual.
Sure, conservative spending is a given when you’re out of work, Stenstrom said. But allow panic to set in and you’ll surely leave good money strategies on the negotiating table.
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E-mail Janet Kidd Stewart at [email protected].