You Got Laid Off by T-Mobile, Now What? (6 Financial tips)
Layoffs bring financial stress. They cause disruption to the structure of daily finances and alter financial goals. However, there are financial strategies that you can use during a layoff to bring stability to your day-to-day finances and even improve your long-term financial goals. Here is a checklist we have prepared for our clients who are employed at T-Mobile to help them prepare for this potential change.
Stabilize Your Finances
A layoff comes with a substantial reduction in income. Your salary is replaced by unemployment, which in Washington is calculated at 50% of your previous salary to a maximum of $1,019/week, leaving most workers with a salary far below what they currently earn. T-Mobile is providing financial support to help during this time, but intentional planning is very important for this upcoming period of unemployment.
- Secure Income: The most crucial financial action you need to take after a layoff is guaranteeing a secure source of money for your spending needs. Your salary will be replaced by unemployment, savings, and other sources. While unemployment is a reliable source of income, these others may not be, and I recommend three steps to securing this portion of your income until a new job begins. First, calculate how much you will need monthly (your monthly spending need - monthly unemployment). Second, decide how long you will need to cover this difference. Three-to-six-month long periods of unemployment are not uncommon in many professions. Third, combine those two numbers to find how much you need in addition to unemployment to cover your spending and put it somewhere secure. This last part is crucial because it is important to remove any uncertainty from your income. Investing is a powerful tool in personal finances, but it brings uncertainty. Stocks, real estate, and other investments all experience downturns, and income is not something you want to be uncertain about. Instead, use a very low risk investment option to keep this income reserve. High interest bank accounts and money markets are great options here and with rising interest rates many of them now pay a good rate to keep your money there.
- Reduce Expenses: My favorite quote about budgeting is “Spend extravagantly on the things you love but cut costs ruthlessly on the things you don’t.” This is especially true in a time when income will be a little tighter. What are some things you don’t enjoy spending money on that can be cut? A good way to start is by separating out discretionary expenses (anything that isn’t essential) and looking for opportunities. Storage units can be downsized, insurance policies updated, and unused subscriptions cancelled.
- Adjust Upcoming Goals: Going through a period of unemployment can impact your long- and short-term goals. Funding college, buying a second home, retirement, and even that trip to Europe may all see changes and modifications during this period. It is important to reassess each of these going into and leaving a period of separation from work. Some upcoming expenses may need additional money set aside for them since they will no longer be covered by your income.
Opportunities in Your Finances
There are obvious financial disadvantages that come with a layoff, but there are also some opportunities that are not available when employed.
- Leverage Lower Tax Brackets: When transitioning from employment to unemployment most people see a substantial drop in their taxable income. If unemployment lasts for several months or longer, you could see a substantial reduction in your taxable income resulting in a lower tax bracket than is normal when you are working. While it is tempting to enjoy this period of lower taxes, it is also an opportunity that you might not get again in your working career. Being in a low tax bracket offers numerous tax-planning strategies that are lucrative to explore. A few examples: Roth conversions – moving money from a taxable IRA or 401k to a Roth offering the potential for tax-free growth. Realizing capital gains – If your income is low enough, below $44,625 in 2023 or $89,250 if you file jointly, you may not owe taxes on capital gains from investments. Contribute to an IRA or Roth – tax advantaged retirement savings plans that only allow contributions when income is below a certain threshold, $153,000 for single filers and $228,000 for joint filers in 2023.
- Organize Your Finances: While working, our jobs can dominate our time, energy, and brainpower. Because of this, it is common for our personal finances to not receive the attention that they need. A break from work is a great opportunity to give your financial life the organization and attention it needs. Adjust investment strategies that need to be changed. Close old credit cards and bank accounts. Meet with a financial advisor to refresh your financial plan and update your goals. The list may be quite lengthy!
- Time>Money: Your finances are important, but it is equally important to have a good perspective on money. A common saying about money is the story of the rich old man who wishes he was able to trade his money for more time. There is a good principle here; that money should not be the focus of our lives, but something that should add value to our lives. So use this period of life, when you have a surplus of time, and spend it. It is a period to grow your life portfolio over your financial portfolio.
T-Mobile is offering a substantial severance for separated employees. Let’s first look at what this severance will be, and then what to do with it.
- 60 days of continued salary
- An additional paycheck for each year worked.
- Prorated bonus
- Unused PTO balance paid.
- Immediate vesting of any 2024 stock grants
These benefits will result in a windfall of cash for all receiving the package along with their following year of stock. This cash can be put to very good use in several of the sections covered previously with income being the most important category to allocate toward. After enough upcoming income has been set aside, securing upcoming large expenses and having enough to use on opportunities that may arise during a period of unemployment is also important. Finally, any remaining amount can be allocated toward longer-term goals. Unused stock can be reviewed and decided if it is better kept or sold and spent/reinvested elsewhere. This severance is the asset that will allow you to accomplish the goals laid out earlier and enter this new period of your life with financial stability and peace.
If you have any questions about the contents of this list or are interested in working personally on your financial needs, please don’t hesitate to contact me.