How to Budget After Job Loss

If you’re like most people in the work force, chances are you’ve wondered what to do if you lose your job. In fact, job loss is one of the most searched financial emergencies in Canada and many people worry about their ability to pay rent, mortgages and buy groceries within weeks of losing their job. You might already have an emergency fund for job loss and some idea of the unnecessary expenses that you’d cut or put on hold if you had to. But besides knowing what to do immediately after losing your job — like updating your CV and collecting final pay and benefits — have you thought about how to budget and manage money after job loss?

You needn’t have the perfect budget. After all, losing a job is never ideal and comes with a slew of emotional ups and downs. An emergency budget is only temporary and is meant to help you manage your expenses until you start earning money again. This step-by-step plan can guide you on how to move forward successfully.

Here’s what to do if you lose your job

• Collect your final pay and severance

• Apply for Employment Insurance (EI) immediately

• Assess your financial situation

• Prioritize expenses

• Stretch your emergency fund

• Increase short-term income while job searching

Collect your final pay and severance

Once your job loss shock wears off and you’ve collected your personal effects, it’s time to make sure you got everything you’re owed. Don’t take your former employer’s word at face value and confirm any final payments that they owe you. This includes your last paycheques, unused sick days or vacation time, bonuses and/or commissions — and severance pay.

Apply for EI immediately

The second thing to do after you’ve lost your job is to apply for EI benefits. If you know or think you might qualify, apply for benefits immediately. Delaying could cause you to lose benefits or, at the very least, receive payments long after you need them.

You need to qualify for EI to receive it, so make sure that you obtain all necessary forms from your former employer. This could include your records of employment (ROE) and T4 slip, which reflect the amount of money you were paid for the last calendar year.

Assess your financial situation and create a budget

Next, it’s time to adjust your budget to align with your new economic reality. Temporary as it might be, unemployment makes it hard to take spending for granted or to spend what you don’t have.

Prioritize expenses

It can be hard to manage your finances following a job loss — leaving you to wonder how to cover your existing costs with less. Start by grouping your expenses into essentials and non-essentials, prioritizing basic standard of living essentials like housing, groceries, utilities and transportation. Try to postpone or eliminate spending on anything you don’t need and when it comes to paying back debt, stick to making minimum payments until you find a new job.

Financial support options

Meeting financial obligations without a steady income can be a tricky balancing act. What if you start missing payment dates and incurring late fees and penalties? What if you just no longer have enough money to cover your debts?

Lenders and creditors might be more understanding than you think, especially if you contact them early and have a good record of repayment. Financial institutions like RBC offer hardship programs such as payment deferrals or budgeting support to help clients dealing with financial difficulties. This includes payment deferrals, financial planning support and personalized help. You might be able to temporarily postpone mortgage and student loan payments — and possibly refinance your loans.

Stretch your emergency fund

It’s never easy creating an emergency fund when you’ve just lost your job but try to use your savings strategically and avoid incurring new expenses. Closely examine any remaining income coming your way, whether it’s from pending salary payments, bonuses, insurance payments or EI. This will tell you how much money you have left to work with until you find gainful employment.

Next, review your credit card statements and identify any regular and ongoing expenses that you can pause or eliminate. Consider making minimum balance payments and try to negotiate a better interest rate so that you have more purchasing leverage if you must borrow against your credit card.

Lastly, pause any contributions you might be making to your investment or retirement accounts and redistribute those funds towards your essential expenses. And don’t despair — these moves are only temporary.

Increase short-term income while job searching

You might need to find part-time or temporary work while continuing to search for your next full-time, permanent role. Again, this is only temporary and meant to help you stabilize your cash flow. Short-term income can come from part-time, freelance and one-off work opportunities.

What happens to my benefits and insurance if I lose my job?

There’s often a grace period following when you lose your job, enabling you to take advantage of a few remaining days or weeks of employee benefits and insurance. Find out immediately what those remaining benefits and insurance amounts are and use them before they expire. Next, consider getting private insurance coverage or joining your spouse’s insurance and benefits plan.

Should you keep saving or investing after losing your job?

Keep focusing on your essentials. Any expenses that aren’t absolute necessities should be cancelled or paused if possible, including investing. But make sure that you understand all the rules and regulations associated with your investments and avoid making knee-jerk reactions that could negatively impact your growth potential or subject you to higher taxes or fees.

Will job loss affect taxes?

Now that you’re temporarily unemployed, it’s important to know that severance and EI benefits are taxable. And while your employer likely withheld taxes from your paycheques with which to cover your taxes, you may now need to start calculating tax payments on your severance and EI benefits. 

How to prepare financially if you think a layoff is coming

Recovering from a layoff can be difficult — especially when it catches you completely off guard. So, one of the best ways that you can deal with an upcoming job loss is to prepare for it. Build a short-term cash buffer and keep a close eye on expenses like subscriptions and memberships. Choose preparation over panic and avoid taking on new debt until you’re back to earning a steady income.

Common financial mistakes to avoid after job loss

It’s easy to make financial mistakes after losing your job, especially if you’re feeling pressured to come up with missing funds to cover all the expenses you had pre job loss. But be careful and pay attention to both your expenses and your current investments. For instance, cashing out RRSPs too quickly could lead you to miss out on its greater tax advantages and incentives. Missing or ignoring monthly bills and avoiding creditors could land you in a negative borrowing spiral, forcing you to take on high-interest debt.

Job Loss Checklist: What to do in the first week

This job loss checklist will help you take the right steps quickly:

• Day 1: Process the news and breathe
  Losing your job can be difficult and it’s perfectly normal to feel shocked, confused and disheartened. Take time to adjust and reflect on your new situation. Sleep in, eat well and try to exercise when you’re up for it. Consider telling your loved ones and a few close friends — so they know to check in.

• Day 2: Apply for EI and review severance
  Now that you’ve had a day to process the news, ensure that you have some financial help on the way. Apply for EI and review your severance package. Registering can take some time, so get to it immediately to ensure that your claims are processed on time and that you’re not waiting too long for your first EI payment.

• Day 3: Review bills and due dates
  Go through your monthly expenses and prioritize bills like rent, mortgage payments and utilities. Pause or cancel subscription payments and memberships. If possible, negotiate lower interest rates on any credit products or services you have and set up banking alerts if you have access to AI tools like NOMI.

• Day 4: Update your resume and LinkedIn profile
  Make sure your resume and LinkedIn profile are up to date and solicit former supervisors and colleagues for recommendations, introductions and LinkedIn endorsements. Consult LinkedIn and the Government of Canada’s resume builder for practical tools and tips.

• Day 5: Review your insurance and benefits
  Go over your insurance and benefits to know exactly what you’re covered for and how long your insurance and benefits will last. In cases of layoffs, employers will often try to extend health benefits like vision and dental care to recently laid off employees.