Unexpected Job Loss? 7 Mistakes to Avoid

Well over a million people in the U.S. could be laid off or discharged from their jobs in any given month.* Sudden job loss or an unexpected job change is often difficult—on your emotions and finances.

Many people feel overwhelmed, and the stress of knowing that bills don’t stop coming adds to that. Monthly bills, discretionary spending and current debt are just a few items that require attention.

It's important to understand that decisions made during this period can impact long-term financial health. Knowing what to consider when you get laid off may help avoid costly mistakes and can help you handle this transition without sacrificing your long-term plan.

Here are common mistakes people can make when laid off or changing jobs and what to consider instead.

Job Loss: Immediate Mistakes to Avoid

You may not have any warning before you’re suddenly faced with the loss of your job. It’s important to take a step back and consider your options before making any immediate decisions.

1. Don’t Act on Emotion

It may be tempting to make immediate decisions while emotions are high. That’s thanks to our human tendency toward present bias and action bias. These two forms of faulty thinking can pop up during stressful times.

Panicked or snap decisions can compound challenges, resulting in even higher stress and anxiety.

Carefully evaluate your situation and create a plan for responding to short-, intermediate- and long-term decisions. You may have spent years positively positioning your finances—with an emergency fund, for example—so don't risk destroying them in a fraction of that time.

2. Avoid Leaving Help on the Table

Take the time to review the details of your exit package before departing your employer. It can be well worth it. Some companies may offer optional career search assistance and training—valuable benefits that can assist when looking for a new job.

If the job change is for other reasons, such as a family move, you might consider negotiating severance or extended health benefits.

And if you're struggling to make ends meet or need additional support, check with your local government and nonprofit organizations to see if there are programs that can provide financial assistance or job training.

Job Stress Can Cause Further Problems

You should give yourself time to grieve your job loss and come to terms with your situation. But making a plan—and acting on it—can help you build momentum for your next steps.

3. Don’t Ignore Your Physical and Mental Health

With so much change, it can be easy to ignore your health. However, sticking to or adopting a specific “health plan” can help restore a sense of calm. That routine practice may include exercise, balanced meals, keeping up with hobbies and regular doctor appointments. With money being a top stressor, paying attention to how your finances can impact health is essential.

You might negotiate your health care benefits extensions with your employer or look into COBRA. This federal program allows you to continue your employer-sponsored health insurance for a limited time, but it can be expensive. You may want to consider shopping for insurance on the health care marketplace or exploring other options like Medicaid or Medicare if you’re eligible.

4. Avoid Job Hunt Hesitation

It’s important to give yourself time to evaluate your situation. You could benefit from a brief pause to recover emotionally before diving back into the job market, depending on your current emergency fund amount and personal circumstances.

Still, you don't want to wait too long to start looking for a new job. Start by updating your resume and online job networking profiles. Your news will likely be met with empathy and offers to help. Reach out to your professional network for leads and recommendations. Consider attending job fairs and networking events to expand your reach.

Beware of Financial Mistakes After Losing a Job

Losing your income will likely deal a serious blow to your finances, but there are steps you can take to lesson the impact.

5. Don’t Tap Your Retirement Funds

The lack of income after a layoff or job change makes it tempting to tap retirement plans for an immediate source of cash. This should be avoided for as long as possible, and instead find ways to keep your money invested if you can. You can lose a portion to federal and state taxes, and it may be subject to premature distribution penalties.

In addition to these upfront costs, you can lose the tax-deferral status of these investments—and the potential for future growth. For many investors, these funds are the staple of long-term financial goals. Using them during a layoff or unforeseen job change should be a last resort.

6. Prevent Overspending

Create an updated budget to evaluate your financial obligations and track your spending. While cutting expenses may seem painful initially, it's important to remember that these don't have to be permanent changes.

This process will help establish financial priorities and identify opportunities for reducing expenses. Some job changes—like working from home—may provide immediate opportunities for reductions in commuting and professional clothing expenses.

7. Avoid Draining Your Emergency Fund

Isn’t this the point of an emergency account? Yes. Keeping an emergency savings plan intact for unplanned expenses is valuable. But think twice before obtaining additional credit lines during a transitional period. It's crucial to manage your rainy day fund carefully.

Leverage the money-saving opportunities identified in your budgeting process to help meet some of your bills. You can also consider reducing extra payments on credit cards, student loans, car loans or mortgages. And, you may try to negotiate a pause on debt payments without penalty.

You Don’t Have to Manage Your Investments Alone

Understanding your financial picture will help strategically position you for today and tomorrow.

When faced with a disruption to your income, it is essential to reevaluate the potential for risk in your investments; you may want a more predictable secondary source of assets. Increasing the allocation of a portion of your investments to more conservative positions may be warranted. But it depends on your situation.

Experiencing a layoff or an unforeseen job change is a highly stressful and challenging life event. Reduce financial stress and worry by conducting a thorough and honest review of your budget or talking with a trusted advisor to establish a checkpoint of where your finances are overall.