5 Things to Do Before You Panic
Most people find out they're laid off and immediately make a financial decision they regret. This guide exists so you don't have to.
Every step in this guide is designed to slow you down in the right way -- so the decision you make on day one doesn't cost you for years.
The first question isn't "what's my next job." It's "how long can I last."
Pull up your checking and savings accounts. Add up liquid cash only. Not your brokerage. Not your 401k. Cash you can access without a penalty or a tax bill.
Divide that number by your monthly expenses. That's your runway.
8 months of runway feels completely different than 2. One lets you hold out for the right offer. The other puts you in panic mode by week three.
If you don't know this number, find it today. Not after you get the call.
You're probably not negotiating your severance. Most people aren't in a position to. But you do need to understand exactly what you signed.
Three things matter most:
Before you make any moves, you need the complete picture.
Checking and savings balances
401k balance and whether contributions were Roth or traditional
Any brokerage or investment accounts
Fixed monthly expenses (rent, insurance, subscriptions)
Variable monthly expenses (food, gas, miscellaneous)
Most people have never looked at all of this at the same time. When you do, the panic usually drops. You realize you have more breathing room than you thought, or you know exactly where the pressure points are.
Either way, you're making decisions with information instead of emotion.
This one most people miss entirely.
When your income drops to zero, or close to it, your tax bracket drops with it. That creates a window to do a Roth conversion at a lower rate than you'd ever pay while employed.
If you were earning $150k and paying taxes in the 32% bracket, a year with no income might put you in the 22% bracket or lower. Any money you convert from a traditional IRA or 401k to a Roth gets taxed at that lower rate.
Move $40,000 in a year like that instead of a normal income year and you could save $4,000 or more in future taxes. One decision. No additional work required.
This window is temporary. It closes the moment you start your next job.
This is the one that causes the most long-term damage. And it almost always happens because someone didn't know what they were signing up for when they pulled the trigger.
A $20,000 early withdrawal sounds like a lifeline. After the 10% penalty and income taxes, you might net $13,600. The rest goes to the IRS. And the tax bill doesn't even show up until April.
If you absolutely must tap the 401k, go in with your eyes open. Understand what the withdrawal is going to cost you today in taxes and penalties. Understand what it means for your financial picture long-term -- because that money doesn't just disappear from your account. It disappears from 20 or 30 years of compounding too.
Before you pull from the 401k, exhaust every other option first. Use your emergency fund. Cut variable expenses. Look into unemployment benefits. Consider a personal line of credit as a bridge. Sell taxable brokerage assets if you need to liquidate something.
If you've worked through all of that and the 401k is still the only path forward, at least make the decision knowing the full cost -- not just the number on the check.
It's a last resort. Not the first one.
Once you've run through all five steps, the picture becomes clear. You know what you have, how long it lasts, and what moves are actually available to you.
A layoff doesn't have to become a financial emergency. For most people it only does because they didn't have a plan before it happened.
So you don't have to make them under pressure.
A layoff doesn't have to be a financial emergency. For most people it only becomes one because they didn't have a plan before it happened.
If you want to work through these numbers with someone before you need to, that's exactly what I do.
Grab 15 minutes with me here to figure out if you're on track →
Chris Brindle is a financial planner for millennial sales reps who earn strong income and want to steward it well. He works with clients through Valor Investments and Planning, an independent RIA based in Easton, PA.
valoradvisor.com