Losing a job is one of the most traumatic events that can happen in one’s life.
Unfortunately, that event became a reality for thousands of Canadians during the economic recession.
As layoffs and the unemployment rate continue to make headlines and hit home for workers and families, many Canadians may be wondering how they can cope with the reality of losing their job.
If you’re still lucky enough to have a job, financial experts suggest you might want to start building up an emergency fund, cut back on unnecessary expenses and reduce debt in the event the hammer does fall at work and you lose your job, because in today’s economy it could take you a while to find another one.
The new tax-free savings account can be a great emergency fund because any earnings are tax-free, and if you have to take money out of the account, you can replace it in the following year.
“The rule of thumb in the past was that it could take anywhere from three to six months to find a job,” said Dave Ablett, director of tax and retirement planning at Investors Group. “But in today’s economy, I’d say it’s more like six to 12 months.”
While recent data suggests we might be pulling out of the recession, Ablett said job losses could likely continue.
Should job loss become a reality, there are a number of financial actions to consider.
The first thing people should do is to take a look at their budget for the six to 12 months it might take to find a job. Identify which expenses are necessary, such as rent or mortgage payments, and which are discretionary, like that new car or vacation you were planning to take.
If you do have two vehicles, you don’t immediately have to sell one. Just keep it off the road for a while and save on the insurance, gas and maintenance costs.
If you’re currently employed but fear you may be laid off, negotiate a line of credit with your bank or financial institution in the event you might have to draw on it if your job disappears.
If you’re unemployed and don’t have a line of credit, consider consolidating your debt under one umbrella loan. You may be able to reduce your monthly payments.
Most Canadians are eligible to roll over some of their severance payments into their RRSP, which creates a tax deduction. However, any severance payout is deemed income, which can affect Employment Insurance benefits.
Ablett says you may be able to negotiate your settlement with your employer.
The amount of severance can depend on the length of service, position, experience, the employee’s age and the likelihood of them finding other employment.
“There are a number of mitigating factors, and it may make sense to talk to a lawyer who deals in employment law to see if what was offered to you is suitable,” said Ablett.
Another area to consider is insurance.
Ablett suggests you check with your employer to see if your benefits can continue after you leave the company. Under some plans you might receive coverage for six to 12 months after your employment has ended.
As well, review your medical coverage. If you convert to individual coverage, you may be able to get a plan from the same carrier with a more favourable premium.
“If you have any outstanding claims, make sure you put them in before the deadline or before you leave the company,” Ablett advised.
Losing a job is a traumatic experience, but with a little pre-planning and making the right financial choices, you can minimize its impact.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at firstname.lastname@example.org.