Most of us don’t like to think about it, but in today’s economy, and especially looking at the economic history of New Brunswick, it’s hard not to think about the possibility of losing your job at some point.
The thing is, anyone can lose their job, and it’s already happened to a lot of New Brunswickers, sometimes more than once. There’s no denying how that situation can mess up your finances, especially if you’re not prepared.
Larry Crandall, a licensed insolvency trustee at Grant Thornton, says people experiencing a job loss make up about 30 to 40 per cent of the cases he sees.
“It’s because they had some type of major disruption in their life due to their income, due to a loss in employment,” says Crandall. “Not necessarily the business has shut down, but certainly, they either had their hours significantly cut or maybe they’ve just been laid off.”
The good news is, there are steps you can take to soften the blow if this unfortunate event happens to you. We asked Crandall for his best advice on how to prepare for unemployment and what to do when it happens:
Start Preparing Now
Crandall’s number one piece of financial advice when it comes to unemployment is to prepare in advance. It’s an obvious one, but it’s something almost nobody does.
“Everyone’s situation is different, obviously,” says Crandall. “But the general trend is just a lack of preparedness. Unfortunately, nobody is saving the way they should be.”
The key is to start now.
“The first thing I tell people, even people who are currently happily employed, start now,” he says. “Nobody likes to think about the possibility of losing their job. But unfortunately, that’s a reality for a lot of Canadians.”
Most financial experts recommend you save around a minimum of six months of your basic living expenses.
“If you’re going to do that, then you need to start sooner rather than later,” says Crandall.
On top of that, you’re also going to need to consider things like the amount of debt you have.
“Maybe you’re just fine covering your credit card payments now, but if you find yourself having to live off of EI for an unknown period of time, suddenly, that credit card bill might become completely unsustainable,” says Crandall. “If we can start early and if we can start considering that possibility while we are employed, that’s probably the best advice we can give everybody.”
Sure, saving six months worth of your basic living expenses would be a great thing to do, but that may seem unrealistic for a lot of young people.
They often have student loans and other debt and they generally have lower salaries starting out in their careers. Add that on top of rent and all other living expenses, the idea of saving six-month salary may seem undoable.
Crandall’s advice is to just start small and build from there.
“Most people are waiting for something to change in their life and unfortunately, we can always find a great reason to put off saving,” he says. “When comes to start putting together that budget, no amount is too little to save.”
It’s also important to take a look at cutting any unnecessary expenses.
“Take a good hard look at what’s coming out of your account. It’s so easy to have so many different transactions for small amounts whether it’s for the convenience of Netflix of Apple Music, all kinds of different online resources. Ask, ‘do I actually need these?’ and if not, cancel them.”
He also recommends learning not to compare yourself to what you see on social media. Realize that what you see is only part of the picture.
Unfortunately trying to keep up with our friends on social media it’s almost impossible. We’re always seeing just the positive aspects of people’s live. We’re seeing vacations. We’re seeing all the new toys,” says Crandall.
“Unfortunately we’re not seeing the downside. We’re not seeing how that’s getting paid for. I think it distorts people’s views of reality.”
If you’re ever stuck or unsure about anything from budgeting, saving or more, don’t be afraid to seek help from a professional, a knowledgeable friend or family member and reliable internet resources. Doing so will help you be prepared for an unfortunate event like unemployment, or other emergencies.
“The school system isn’t generally equipped to teach young Canadians about how to manage their money. At one point there was a class in the school system called ‘home economics’ where you actually considered the economics of a home and the budget of the home. That generally speaking doesn’t exist anymore,” says Crandall.
“Don’t be afraid to ask people about budgeting. Whether it’s a trusted family member of whether it’s resources on the internet of friends and family. Don’t be shy to talk about money.”
For older people who are more established in their careers, Crandall says it can be more difficult to prepare and deal with sudden unemployment.
“Unfortunately, their fix costs are a lot of time higher because they have families and mortgages,” he says. “Typically they have more asset related payments that they simply can’t not pay. They tend to have a little bit less flexibility.”
That’s why it’s important to start creating that special emergency fund now. Crandall says he often sees older people exhausting their savings during times of unemployment, or even more problematic, dipping into their RRSPs.
“They may not have an emergency fund, but they certainly could have a significant amount of RRSP savings and they will try to use that to try to survive,” he says.
“If that’s your strategy, you have to be really careful, because when you take money out of an RRSP, it’s taxable. You might end up solving the problem of paying the credit card bill, but you might be inadvertently be creating another problem which is an income tax debt.”
That’s why Crandall advises talking to a financial advisor or licensed insolvency trustee before they even consider dipping into their RRSPs.
“There’s little that more frustrating to me than when I see somebody who’s been living off of RRSPs for the last year. They are now exhausted and they subsequently need to file for either bankruptcy or a [consumer proposal],” he says. “Because if they had filled that some time ago, those RRSPs would have been protected from creditors. Find out that information sooner rather than later.”
Programs To Help
Besides being prepared, it’s important to know about the government programs available for if you ever get laid off.
The most obvious one is Employment Insurance, also known as “E.I.” E.I. covers 55 per cent of your wages up to a maximum of $2,000 monthly. Crandall says it can take up to 28 days plus a one-week waiting period for you to receive your first cheque. That’s why it’s important to start the application process as soon as you learn you’re out of the job.
“It’s important for them to get their ROE [Report Of Earnings] from their employer as soon as possible so they can file that application,” he says.
But if your business has suddenly closed due to bankruptcy or receivership, there is another government program you can leverage.
The federal government’s Wage Earner Protection Program (WEP) will pay to employees any of the wages they have been unpaid within the last six months to a maximum of around $6,600
“That’s a great step because historically if a business went bankrupt employees got nothing. All of the money went to the business’s creditors,” says Crandall.
If you’re in a situation where the business hasn’t gone bankrupt but you’re still owed wages, contact your provincial employment standards board.
“They can try to help you recover what’s owed to you for any wage,” says Crandall.
If you’re unsure of what options are available to do you, seek professional help. Crandall says most financial advisors and licensed insolvency trustees don’t charge for consultations.
“Don’t be shy don’t be ashamed to see professional advice,” he says. “Any financial planner, and license insolvency they will talk to you, and generally speaking, they will not charge for a consultation.”