How to manage your finances after a job layoff

In recent weeks, numerous organizations ranging from crypto exchanges such as Gemini and Coinbase to real estate companies such as Compass and Redfin have announced job layoffs.

While the unemployment rate remains low at 3.6%, according the May jobs report, factors including high inflation, continued supply chain shortages and the Federal Reserve's recent moves to increase interest rates could mean a recession is on the horizon.

For those who suddenly find themselves out of a job or have their hours cut back, it can be confusing to figure out what to do with your finances.

Select spoke with Stefanie O'Connell Rodriguez, host of Real Simple's Money Confidential podcast, to find out more about how to analyze your savings and expenses, what to do with your health insurance and unemployment and whether or not you should raid your retirement savings.

After you've been laid off, you'll want to take a careful look at your finances, Rodriguez explains. For starters, consider what assets and savings you can draw from. Hopefully you've prepared for this moment and have a fully funded emergency fund that you can lean on while you search for a new job.

You'll then want to take stock of your expenses: Which ones are discretionary? How much will your essential expenses, such as housing, food, transportation and healthcare cost?

After you've looked at both your savings and expenses, consider what discretionary items you can cut and whether you'll have enough money to cover the essentials mentioned above. If the answer is no, think about what other sources of income you can draw from — that could mean seeking financial assistance from a family member or taking on a side hustle or some extra gig work for the time being.

While unemployment benefits are provided through a joint state and federal program, each state runs its own specific program. In order to apply, you'll need to contact your state's unemployment insurance program either in person, by telephone or by visiting its website in order to register and file a claim.

Note that the eligibility requirements, benefits offered and the amount of time you'll be able to receive them varies by state. The sooner you apply, the sooner you'll have access to whatever your state offers.

Typically, there are three options when it comes to getting health insurance after you lose your job: You can gain access to healthcare through a spouse's or parent's plan (if you're under the age of 26), enroll in continued coverage through your current employer via COBRA or enroll in a plan through the Affordable Care Act (ACA) Health Insurance Marketplace operated by Healthcare.gov.

If you lose your job and access to your employer's medical insurance plan, it's considered a qualifying life event and you'll have 60 days to apply for a plan through the Marketplace — generally, if you plan on joining a spouse or parent's plan, there's a special enrollment period of 30 days. What this usually means is you'll need to get your health insurance options sorted within two months after losing your job.

The other option you have is to keep receiving medical insurance through your former employer, through COBRA. However, this can be very pricey. Keep in mind that while your employer paid for a portion of your premium while you worked there, with COBRA, you'll have to pay the entire premium in addition to a 2% administrative fee. As a result, most people find there are cheaper health insurance options available elsewhere.

Depending on your age and income level, you may also be eligible for other government assistance programs such as Medicare or Medicaid.

If you're considering raiding retirement accounts such as an IRA or 401(k) for funds following a job layoff, think carefully before doing so.

When you invest money in an IRA, you're accumulating earnings on your investments. While individuals of any age are eligible to withdraw their contributions from a Roth IRA, if you want to withdraw your investment earnings before you reach the age of 59 and ½, you'll have to pay a penalty fee of 10% in addition to any state or federal income taxes. You must also have had the account for at least five years.

You could, however, be eligible to withdraw funds earlier. If necessary, you can dip into your Roth IRA investment gains without paying the penalty fee or incomes taxes, as long as you're using the money toward qualified expenses such as medical care or higher education.

If you want to pull money from your 401(k) before age 59 and ½, you'll likely have to pay the penalty fee and income tax unless that distribution is considered to be a hardship withdrawal, which could be put toward a health insurance premium you have to pay when you're unemployed.

Rodriguez generally advises that people avoid taking money from their 401(k) and IRA retirement accounts since doing so could mean missing out on investment earnings in the long run.

"And because the job market now is quite strong, an imperfect temporary job is likely a better option than a last resort option like raiding retirement savings," says Rodriguez.

Rodriguez suggests that people in need of short-term financing look for options with low interest rates. Using a 0% APR credit card to pay for new purchases can be a good choice for cardholders with excellent or good credit scores. 

0% APR credit cards tend to have an introductory period, typically between 12 and 20 months, where cardholders don't have to pay interest when they revolve their balance from month-to-month. You are, however, still required to make a minimum monthly payment.

The U.S. Bank Visa® Platinum Card has no annual fee and offers 0% intro APR for on purchases for the first 18 billing cycles — after that, it's 18.74% - 29.74% (variable).

The Wells Fargo Reflect® Card is another no annual fee option with a 0% intro APR on purchases for 21 months from account opening — after that, it's 18.24%, 24.74%, or 29.99% (variable).

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