Get early grip on finances after a layoff


June 20, 1993|By JANE BRYANT QUINN

New York -- The good news on jobs is that unemployment edged down to 6.9 percent in April and May, from 7.1 percent in January.

4 The bad news: Corporate layoffs aren't over yet.

Some 25 percent of companies surveyed last year by the American Management Association expected reductions, and the final count typically is far larger than the original forecast.

Further confirmation comes from Susan Abentrod of the placement firm, Transition Team, in Troy, Mich.

She gives company-sponsored financial-planning seminars for laid-off workers and says that her business is still going nonstop.

When hit with a layoff, the first risk workers face is panic, Ms. Abentrod says.

They roll up in a ball and don't do anything for weeks or months.

Or they deny their loss of earnings by going on a spending spree.

Panic is normal, as are anger and tears. But it's crucial to get an early grip on your finances -- to see how many months you can go without work before your budget crashes. As a rule of thumb, you'll need one month of job search for every $10,000 in salary you seek, Ms. Abentrod says, although older people or those in bad job markets may find that their search goes on much longer.

Here's Ms. Abentrod's advice for stretching your money over the maximum number of months:

* Put any severance pay into a savings account. Do not use it to repay debt. You'll need to husband all your cash, to cover your living expenses.

* Find out about the company's COBRA coverage. Most companies with 20 employees or more that offer group health-insurance plans must offer those plans to laid-off workers.

You buy the coverage at the group premium plus a maximum of 2 percent and usually can stay in the plan for up to 18 months (or until you come under a new employer's plan).

If you can't get coverage through a spouse's plan, take care not to miss your COBRA benefits. You have only a few of days to sign up.

Companies with fewer than 20 employees might temporarily continue coverage if someone in the family is ill.

* Draw up a "layoff budget." Include only your essential expenses (mortgage, rent, utilities, food, car payments, gas for the car) plus the minimum payments you have to make on your consumer debts.

Compare these monthly expenses with the money you have available (in savings, from a spouse's income, from unemployment pay, from home equity loans). That tells you how long you can last before your cash gives out.

You may find that you have a larger cushion than you thought.

If your cushion drops to four months expenses and you're still out of work, start calling your creditors to negotiate payment moratoriums.

You must hold back money for living expenses, even if it means temporarily neglecting your debts.

For the name of a low-cost service that can negotiate with creditors for you, call the Consumer Credit Counseling Service, 1-800-388-2227. Also, ask your bank if you can make half-payments on your mortgage for six months.

* Put your credit cards in a drawer until you've got another job. No extra spending is allowed.

* If you need life insurance, replace any lost company coverage with an inexpensive term policy. It's essential protection for your family.

* Apply for unemployment pay. Don't be too proud. Every dollar you collect lengthens the time that your savings will last.

TTC * If you have a lump sum due from a retirement plan, handle it with a cool head, unclouded by your anger at your ex-company.

You can roll any tax-deferred money into an Individual Retirement Account. But if you have the choice, it's often smarter (and cheaper) to leave the money where it is and let the company manage it for you.

That's especially true for any after-tax money that you contributed to the plan, because those funds can't go into an IRA.

Just be sure of two things:

1. Will the company release your lump-sum payment any time you need it? If the alternatives are only "take the money now or take it at retirement," take it now and roll it into an IRA.

2. Does your plan offer good investment choices? If your only alternatives are a fixed-interest investment and company stock, you might want to look for something better.

If you do choose an IRA, take one at a bank or money-market fund. You can't afford any investment risk until you have a job again. Tap your IRA (or company plan) for spending money only as a last resort -- because you'll owe taxes on any money you take out.

3' 1993, Washington Post Writers Group

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