The best way to soften the impact of job loss is to mentally prepare for the possibility that it may occur during your working life.
Planning ahead and building an emergency fund that covers three to six months of living expenses can act as a lifesaver. Avoiding large credit card balances will also make this stressful period more manageable.
“I’m always surprised by what embarrasses people,” said Howard Dvorkin, CPA and chairman of Debt.com. “I’ve counseled perfectly rational adults who feel ashamed about being laid off—even though the decision had nothing to do with them. It was driven by market forces or business priorities. Yet many of the same people didn’t feel embarrassed running up five-figure credit card bills while employed, then paying huge interest charges and fees because they couldn’t pay them off.”
Because people don’t always do what’s best for them, we asked finance experts for the first financial steps to take the moment you’re let go. Here’s their advice.
Cut Expenses Drastically
There’s no avoiding this: you’ll need to reduce spending to an uncomfortable level. Alexander Lowry, a finance professor at Gordon College and executive director of the school’s Master of Science in Financial Analysis program, recommends keeping your internet service because you’ll need it for job searching.
Beyond that, use a red pen on every expense. Start with obvious cuts—dining out, hobbies, and nights out—then look deeper for additional savings.
“Talk to your auto insurance agent to learn how much you’d save by raising your deductible, dropping collision coverage if your car is older, or keeping the vehicle parked if you’re not commuting,” Lowry said. “You can also switch to a cheaper phone plan and ask your children which extracurriculars matter most; some activities may need to be paused.”
Prioritize Your Bills
Not all bills carry the same consequences when missed. When funds are limited, prioritize payments that protect your home, transportation, and essential services.
“When cash gets tight, you may need to decide which bills to pay first,” Lowry said. “For instance, it’s better to delay a medical bill than a mortgage payment.”
Call Your Creditors
Contact creditors as soon as possible after a job loss, Elyssa Kirkham, a personal finance writer, advises. Federal student loans and many private lenders offer programs that reduce or suspend monthly payments, but you generally must apply early. People often delay, assuming unemployment will be brief, but that assumption can be risky.
“Don’t stop making payments until you have written confirmation that your loans are deferred,” Kirkham said. “Otherwise you could become delinquent or even default, which adds costs and damages your credit.”
Invest in Your Job Hunt
After covering daily living expenses and essential bills, spend any available funds on your job search. Updating your resume, engaging on professional social media, attending networking events, and joining relevant organizations can speed your return to work.
“Refresh your resume, be active on social media, go to networking events, and let people know you’re looking,” Lowry said. You might also consider hiring a career coach to improve your resume and interview performance.
Consult a Financial Professional
Chris Cosenza, a certified financial planner, recommends discussing options for your retirement accounts with a qualified advisor. Deciding what to do with a 401(k) or whether to roll a pension into an IRA can have long-term consequences, and these choices are often overlooked in the immediate aftermath of a job loss.
“Decisions about retirement accounts are especially important today given market conditions,” Cosenza said. “A comprehensive discussion of your overall financial and retirement plan, including risk tolerance and multiple possible strategies, is necessary to make the right choice.”
Do your homework with an experienced advisor so you can make informed decisions tailored to your situation.
Don’t Tap Retirement Savings Unless Absolutely Necessary
Staci McIntosh, author of “Brace For Landing: Managing Your Life and Career After Being Laid Off, Fired, Pushed Out or Demoted,” warns that retirement savings should be a last resort—after seeking help from friends or family and after selling nonessential possessions.
Early withdrawals can trigger taxes and penalties that may come due before you find new work, and tapping retirement funds harms your long-term financial security. The short-term relief may create lasting regret and future hardship.
Consider Downsizing Temporarily
Take an unsentimental look at your housing situation and determine whether you need as much space or the same neighborhood during unemployment. Even homeowners may find temporary downsizing solutions that reduce monthly costs without permanently losing the home.
“If your mortgage is $2,500 per month, could you rent your house for that amount and move into a $2,000 rental? That saves $500 immediately and likely lowers utilities,” McIntosh suggested.
Consider Selling Your Home
If you have substantial home equity, selling could be a viable way to stabilize your finances. In extreme cases, McIntosh notes that some people have chosen foreclosure to stop mortgage payments and access cash for basic needs—though this approach severely damages credit for years and should be considered only as a last resort.
“Credit can take about seven years to recover from a foreclosure,” she said. “But if you don’t rely on credit and need to avoid mortgage payments for several months, some people decide this trade-off is necessary.”
Take a Low-Wage, Part-Time Job
Dvorkin advises not to dismiss part-time, lower-wage work while you search for a full-time role. Any income helps, and there’s a psychological benefit: staying busy reduces the temptation to overspend to cope with stress.
“You won’t earn much, but more importantly, you won’t spend more,” he said. “Job loss can cause depression and ‘retail therapy.’ Working keeps you occupied, earns a little money, and prevents costly coping habits.”
Consider a Lower-Paying, Full-Time Job
McIntosh encourages considering full-time positions in your field that pay less than your previous job. While a pay cut is unpleasant, the math often favors taking immediate employment rather than remaining unemployed and losing months of income.
“If a new job pays $120,000 instead of $140,000, it may seem like a big loss,” she said. “But being unemployed for two months costs you $20,000 in forgone salary—and you might be unemployed longer. Take the job now and pursue a higher-paying role later.”