How to Deal with a Job Loss or a Lay-Off
The Financial Side
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How to handle the Financial Side of a Lay-Off (Job Loss)

Some Steps you have to take to know where you stand


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1. Calculating your current Financial Position


What is my my Networth? A Guide for a realistic Assessment.

The most important aspect of a lay-off is how it affects your current financial position. It is therefore the part which needs your immediate attention. We have divided your financial assessment into several parts. The easiest way to do this for your circumstances is with a program like Excel or a similar spreadsheet. But, if you do not know how to use one or you do not have the program, you can also do the work manually by getting some paper with pre-prepared columns from an office supply shop. You might not be able to finish the process quickly, since you will most likely have to ask your financial institutions what your exact, up-to-date situation is. To make it easier for you to understand the whole process, we have filled in amounts of a fictitious person, we might call "Walli". "Walli" is quite well off, the reason being, that we wanted to show as many options as possible to cover most of the areas you are likely to come across. The Financial Statement of "Walli" has three parts and a summary.



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1.1 The Assets


What are my Assets? How much do I have in saving, stocks, bonds and other investments, 401k plans, IRA's and any other form of wealth that has a cash value and which can be realized. The valuation of most of these items should not be difficultto determine, because their value is what the bank statement, or the market, says it is. On items where you have some disgression in putting in a value, use the most conservative market value. That item might very well be your home. List all those items in a table, as shown below:

1.1.1. List of liquid Financial Assets as of this Date (mm/dd/yy)

Type of Asset Where Located Original Value when Purchased Current Cash Value if sold or redeemed **) Tax Impact of Sale or Liquidation***) Earliest Date of Redemption or Sale Other
Checking Account Walo Bank 750.00 750.00 0 Immediate  
Savings Account Walo Bank 6,500.00 6,832.00 0 Immediate  
Money Market Account IB Bank 4,560.00 4,660.00 0 3 days notice  
CD's *) IB Bank 12,746.00 13,906.00 0 3 months  
Savings Bonds*) Deposit Box 1,200.00 1,370.00 0    
Other Government Bonds (list them individually) Walo Bank Deposit 2,400.00 2,850.00 0 10 days  
Stocks and Shares (list individually - not 401k) Elec Share Trade 23,650.00 31,750.00 1,350.00 Same Day If held less than one year, Capital gains is income for tax purposes
Stock Options (list individually) XXY Company 12,700.00 27,400.00 4,116.00 3,400 shares same day,
4,500, Dec 31,
4,800 June 30, XXXX
Tax impact will vary
Other liquid Assets (Gold, Cash etc) Deposit Box 750.00 950.00 30.00 Immediate  
Total Liquid Assets (A)   65,255.00 90,468.00 5,496.00    

*) if you hold CD's or Savings Bonds at different institutions or with different rates of interest and different maturities list them individually.

**) Include accumulated interest, if known.

***) The overall tax impact may greatly vary, depending on your particular tax situation. Please consult a tax specialist!

You might also have Life Insurance policies that could be redeemed. We have not shown those above, since you may want to keep those in the initial stages. However, it would be a good thing, if you inquired, how much cash the redemption of these policies would bring. If you can find out their value, enter it in the table above. Remember that Term Life Policies do not have any redemption value! Also remember that you will have to continue to pay your premium, if you want to keep the life insurance policy.

Retirement Assets should be kept separate from the Liquid Assets. The main reason is that retirement assets will usually attract tax penalties if you redeem them (i.e. turn them into cash) before their due date. You should consult an accountant or certified financial planner, if you contemplate liquidating retirement assets. But be careful with running up costs when consulting these individuals. You should also remember that so called certified financial planners are basically salesmen for financial products.

1.1.2. Long Term and Retirement Financial Assets as of this Date (mm/dd/yy)
If at all possible, should not be liquidated

Type of Asset Where Located Original Value when Purchased Current Cash Value if sold or redeemed Tax Impact of Sale or Liquidation Earliest Date of Redemption or Sale Other
IRA's (List them) IB Bank 26,750.00 32,650.00 Ask Accountant 30 days  
Roth IRA IB Bank 12.750.00 14.220.00 Ask Accountant 60 days  
410k Stocks (list individually) XXY Company 14,750.00 29.650.00 Ask Accountant Variable  
Total Long Term Retirement Assets (B) - 54,250.00 76,520.00 - -  

Your non liquid financial assets, such as your house, your boat, your plane, your sea side condo and whatever else you have of real value, will all carry a very high liquidation cost, if you decide to sell them. Fire sales always attract the "sharks" of this world. Moreover, in a depressed market, there might be hundreds of similar assets for sale. You also have to consider that for instance, selling your house means real estate commissions, and you have to purchase a new house and move there. All these actions involve costs, include them in your future estimates of outgoings.

Type of Asset Where Located Original Value when Purchased Current Conservative Cash Market Value if sold Tax Impact of Sale or Liquidation Earliest Date of Redemption or Sale Other
House Mortgage see liabilities below in 1.2.1. 525,000.00 575,000.00 Ask Accountant 90 to 360+ days  
Cars (list individually) Bank Loan see below in 1.2.1. 32.750.00 12.000.00 Ask Accountant Immediately if car is near new and can be sold to a dealer (at a high discount) otherwise 60+ days  
Beach Condo Mortgage see liabilities below in 1.2.1. 200,000.00 185,000.00 Ask Accountant 90 to 360+ days  
Total non liquid Assets (C) - 762,750.00 772,000.00 - -  

Do not include antiques or paintings unless the pieces are individually and conservatively valued at $50,000+ each. The likelihood that you will get a decent price for any of that, is very small. If you have items that can be put up for auction with a good auctioneer and a reasonably chance of interest, do so. But leave a reserve price (i.e. the minimum you want for the item from the auction) on it and be prepared to take the item home, if it does not sell. You can also try e-bay, but do not put your hopes on a quick sale.

Total Assets (D) (Add the Totals of A+B+C) - 882,255.00 938,988.00 - -  

(D) is the sum total of your assets. You have to keep in mind that as we have shown, these assets have different liquidity (that is why we have classified, or grouped them) characteristics when it comes to turning them into cash. But for now, lets have a look at what you owe against your assets, your liabilities.


1.2. The Liabilities


Anything you owe to anyone is a liability which you ultimately have to discharge. This includes the $3,000 which your uncle Charlie lent you ten years ago. He might not want it back at this time, but it still remains a liability, something you owe to someone. Therefore start to make a list of your liabilities like the one shown below. All the important facts about each liability are shown below and should be explicitly noted. You can, if you want to separate credit cards and unsecured loans (not equity lines of loans for the purchase of a boat or a car or any other assets) in a separate table. Here we have grouped them together with loans against assets. Three items are the key in that table:

  • The Minimum Monthly Payment to stay current
  • The Current Outstanding Amount, and
  • The Unused Credit (on credit cards or equity lines or other unsecured bank loans)

1.2.1. List of Amounts owed (Liabilities) and monthly Expenditure directly related to Liabilities as of this Date (mm/dd/yy)

Type of Liability Owed to Whom? Monthly Minimum Payment Current Outstanding amount Credit unused and available (to credit limit) When are payments due? Annual Interest Rate and other Info
Credit Card - Visa (list each Credit Card or store card) Walo Bank 625.00 12,500.00 3,500.00 25th each month 19.99% - Current
Credit Card - MasterCard IB Bank 900.00 18,000.00 2,000.00 30th each month 21.99% - Current
American Express*) AMEXCO 1,660.00 1,660.00 0 15th each month Paid in Total each Month
General Bank Loan Walo Bank 743.00 24,750.00 5,250.00 25th of the month 8.5% - Current
Revolving Credit Equity Line First Bank 1,520.00 76,000.00 9,000.00 25th each month 7.2% - Current
Car Loan (list for each car) First Bank 750.00 23,500.00 0 25th each month 8.4% - Current
Car and Boat Leases (list individually) First Bank 1,350.00 67,000.00 0 15th each month 11.2% - Current
Mortgage on each residence (list individually) Federal Mortgage
- Primary Residence

- Secondary Residence (Condo)


2.185.00


1,212.00


378,000.00



180,000.00
- 25th each month 6.9% - Current
Total Liabilities (E)   10,945.00 781,410.00 19,750.00    

*) AMEXCO does not have a credit limit, but you have to pay whatever you spend at the end of every month.

The size of your liabilities have obviously implications for your months expenditure. If you can reduce some of the liabilities, you will be able to reduce your monthly outgoings.Therefore, you should immediately stop all expenditure on credit cards by all family members.

    Net Worth against Original Purchase Value Net Worth against lowest Current Market Value Credit Unused    
The Net Worth and your Unused Credit (F)   100,845.00 157,578.00 19,750.00    

The Net Worth is a very important number for your financial stability. It is, after all the financial manipulation and acquisition frenzy you go through, the amount you really own. We have two values which might be helpful: One against what you originally paid for your assets, and one against the current conservative market value. It could be that you owe more than your assets are worth. This could happen if the value of your house has fallen significantly or if you "sailed close to the wind" and obtained mortgages that have exceeded the value of the house, what they now call euphemistically sub-prime mortgages. Then, you have a real problem and you might have to "negotiate" yourself out of this dilemma. The unused credit amount is really not something you should tap into, since you currently will have little income to pay credits back and you want to reduce expenditure.

    Net Worth against Original Purchase Value Net Worth against lowest Current Market Value      
The Net Worth excluding Long term retirement assets (G)   46,595.00 81,058.00      

We also stated that you should not liquidate your long term retirement assets, because there may be significant tax implications if you do that. Therefore, your more realistic NET WORTH is the one shown above.



1.3. Current Expenditure

Your current expenditure should be divided into the amounts you have to pay, because you have some asset obligation (or covenants, for instance when you lease a car or have a note on a car, then you will be obliged to carry an insurance cover, even if it remains in your garage and is never driven), and amounts that are the direct result of your living expenses. Some of the former monthly obligations, you will only be able to stop when you no longer own the asset. Other expenditure, such as school fees, often carry a notice period, so you cannot stop that expenditure immediately.

1.3.1. List of ongoing Current Expenditure that cannot be changed immediately or that are linked to Assets, as of this Date (mm/dd/yy)

Type of Expenditure Owed to Whom? Monthly Minimum Payment   Notice Period or Limitations When are payments due? Annual Interest Rate and other Info - Payment Status
Condo Fees Condo Association 725.00   Due as long as Condo owned 25th each month Current
School Fee Private High School 950.00   6 Months notice 30th each month Current
Car Insurance's (make List) Astra Insurance 360.00   Due as long as car is owned 15th each month Current
Boat Insurance Astra Insurance 240.00   Due as long as boat is owned 25th each month Current
Life Insurance Premium (List each Insurance) Astra Insurance 300.00   Can be cancelled with 30 Day notice 25th each month Current
Storage Fee for Boat at the Boat Club Bertram Marina 659.00   Due as long as boat is owned 25th each month Current
Total Expenditure on items that cannot be changed in the Short run (H)   3,234.00 - - - -

You should take note that, since "Walli" carries mortgages, his property insurance and property taxes on his primary residence and condo are normally paid into an escrow which the lender administers and pays on an annual basis. Therefore they are not included above and are in the payments made for the mortgages.

Total Monthly Expenditure on Liabilities (I) (Add the Totals of the appropriate Columns of E+H) - 14,179.00   - -  

It is likely that your expenditure linked to assets is rather inflexible in the short run.

1.3.1. List of monthly Living Expenses, as of this Date (mm/dd/yy)

Type of Expenditure Where do you spend it? Monthly Payment     When are payments due?  
Food,Detergents, Cleaning for a family of four Grocery Stores 1,000.00     Evenly over the month  
Dry Cleaning, Outside Laundry   150.00     Evenly  
Gas, Electricity, Water (incl. condo) Public Utilities 600.00     30th each Month  
Gas, Car Maintenance (3 cars)   350.00     Evenly, except for maintenance, every 9 months  
Land line Phone,Cable TV and DSL Line Local Co 200.00     30th each Month  
Cell Phones Local Co 150.00     30th each Month  
Medical Insurance, drugs and co-pay, household insurance Blue Cross, All State or similar 750.00     30th each Month  
Entertainment, school spending of kids   500.00     evenly  
Miscellaneous, including pocket money   300.00     evenly  
Total Living Expenditure (K)   4,000.00        

Other current expenditure are the result of you and your families living expenses. You may be able to vary this widely, depending on how well you or your wife can cook. The more you rely on semi prepared foods, the higher your food bill will be.We will address these points, and others, in our considerations on the monthly expenditure budgets.

Total Monthly Expenditure (L) (Add the Totals of the appropriate Columns of I+K) - 17,979.00        


1.4. Summary of your Current Finances

To summarize the current state of your financial position: We have now learned what your Net Worth and what your Current Expenditure Level is

1.4. Summary or Assets and Liabilities, Net Worth and Monthly Expenses
Item Based on original Purchase Value Based on latest Conservative Market Value
Net Worth excluding Retirement Assets 46,595.00 81,058.00
Net Worth including Retirement Assets 100,845.00 157,578.00
Monthly Expenditure 17,979.00  
Unused Credit 19,750.00  

Now we can start to look at your income after you lost your job and how we can trim your expenditure. For this move to the Future Income Page.

You may think that the whole expenditure pattern of "Walli" is highly exaggerated. It is, admittedly, on the high side. However, the main purpose was to show as many of the expenditure items that a person is likely to have, so that you get a good feel what has to be included in your calculations. But just to follow the train of thought to the end, we make a quick calculation of what "Walli" was likely to have earned to afford such a lifestyle.

"Walli's" Income
Item Amount $ Comments
Annual Expenditure 215,748.00 (12 times $17,979.00)
Annual Savings and Contribution to IRA's and 401K 34,200.00 9% of Gross Income
Federal and State Income Tax 106,400.00 28% of Gross Income
Annual discretionary Expenditure on house improvements, down payments on cars, boat, vacations etc 23,652.00 6.22% of Gross Income
Approximate Annual Income 380,000.00 (Monthly $26,000 plus an annual Bonus of $68,000)

Walli was by no means a poor man and he lived close to his income level. The annual expenditure might have been higher then shown since, when not under stress, how much he spent from his "pocket money" or for entertainment was probably higher than shown. That would have decreased his discretionary spending on vacations and down payments for new "toys". Depending on where he lived, he may also have had a slightly lower tax rate, especially if he lived in a state that does not levy State Income Tax.

We hope that these financial calculations will help you set up your own system. Please let us know your comments or ideas for improvements by sending us an e-mail. Valuable suggestions will be incorporated in future updates.

You have not completed your financial plan, there are tables for future income, and a weekly/monthly budget that will help you.


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