Getting let go is certainly a fear for many of us. And if your company has been having layoffs—or you think it might soon—that fear becomes even more urgent.
Chances are, money worries are top of mind: How will I pay rent? How will I afford to eat? How will I support my family without a steady paycheck?
The good news? If you think it’s possible you might be laid off in the near future, you can take proactive steps today to get your finances in order, so you’re prepared for the worst. Here’s how:
KNOW YOUR BARE-BONES BUDGET
Most likely, your current budget includes the following: your needs (like rent and food), wants (like travel and hobbies), savings, and debt.
But when times get tough you’ll have to resort to a bare-bones budget. In other words, how much do you need to survive? This will focus solely on your needs—housing, food, transportation, and basic necessities (like, say, shampoo or cleaning supplies).
Having this number on hand can help you know where to cut back, should you have to—understanding that your savings or debt may take a hit for a short period of time. So, start outlining now how much, on average, you spend on each of these items, and how much you spend on everything else.
PAD YOUR EMERGENCY SAVINGS
Everyone should have an emergency fund set aside in case something unexpected happens, whether it’s a medical expense, a home or car repair, or something else that may require a hefty outlay of cash outside your regular budget. It’s possible you already have one.
A layoff is definitely a situation that warrants tapping into your emergency fund—after all, your bills don’t just stop because your income does. On the flip side, if you see a possible layoff looming, now’s a good time to bulk up that fund as much as you can.
Consider upping how much you’re contributing to that savings account. If you don’t already have an emergency fund, think about creating one. Ideally, you’ll want to work up to having enough stashed away so that you can cover your bare-bones expenses comfortably for three to six months (roughly the amount of time you may need to find another job).
To find the extra cash, go back to that bare-bones budget and see if there’s anywhere you can cut back. Did you recently get a raise? Rather than increasing your spending, channel that extra money into your emergency fund. And try to keep your lifestyle the same for the time being. We’re not saying you shouldn’t treat yourself every once in a while, or that you shouldn’t invest in certain things that are in need of an upgrade. Just remember that having the majority of that money tucked away is a lot more financially responsible—and will help you out much more when you’re out of a job.
GET A HANDLE ON YOUR DEBT
Paying off debt and loans can take a big chunk of your paycheck when you’re working. When you’re unemployed, they can be even tougher to manage and a huge stressor (in addition to the stress of having to find a new job).
So while you’re still getting paid every month, have a plan in place to pay off your debt, and proactively avoid letting it accumulating over time. Focus on paying off high-interest loans first or anything that you can get rid of quickly.
That said, “if a layoff is imminent and you are already living paycheck to paycheck, now is not the time to start paying off debt. That doesn’t mean that paying down debt isn’t important, especially if it carries high interest, but right now you want to focus on your plan to cover your essential expenses while you are looking for a new job,” says Holly Morphew, Accredited Financial Counselor at Financial Impact.
“Until you find a new job or replace your income, cash is king. That means that you will want to save any extra money you have to pay for future expenses,” Morphew adds. “This allows you to truly take advantage of what debt is meant for, to bridge the gap from where you are now and where you want to be. As long as you pay it off in a short period of time, even if it cost you a little money to borrow it, it’s simply a tool in your personal finance toolkit.”
If you have federal student loans, you have several options to help you out. You can opt for an income-driven plan and, if your income is low enough, pay as low as zero dollars and still be in good standing with your loans. You can also apply for deferment or forbearance, which puts a pause on your payments for a period of time. Each option has their own eligibility requirements and you should talk to your loan servicer about which makes sense for you. Just be aware that interest will keep accruing during this time, so once you get a job you’ll want to continue with standard payments.
Have private student loans or credit card debt? Talk to your lenders and see if there are any programs to help reduce payments or put them on pause. If not, you’ll want to pay at least the minimum to keep your credit in good standing. Also, if you can, keep the credit card debt at bay and only use cash to keep from going into further debt.
TAKE ADVANTAGE OF YOUR BENEFITS
One of the great parts of having a job, as you know, is the benefits—and when you’re unemployed you definitely feel the pain of losing those perks.
So make sure you take full advantage of the benefits you currently have, while you still have them. Schedule those doctor’s appointments you’ve been putting off, get your dental check-up, and continue contributing to your 401(k) (and capitalize on your company’s match by contributing enough to get the maximum matching amount).
About that 401(k) contribution: “If you are currently contributing more than what your company will match, then reduce it to get the full match without exceeding it. This will increase your paycheck so you can continue to build your cash reserves while also maximizing your company’s contribution to your future,” says Morphew.
And, she adds, “if you are contributing less than your company’s match, then maxing it out is still a good idea, because you will get money you wouldn’t otherwise get, even if it is locked up in a retirement account. When you leave your company, whether by choice or if you get laid off, you can roll your 401(k) over to an IRA.”
CONSIDER A SIDE HUSTLE
If you’re passionate about something outside your day-to-day job, it might be worth thinking about and pursuing possible side gigs—whether it’s freelance writing, designing, or web developing; selling artwork on Etsy; or even just walking dogs, babysitting, or driving an Uber. Picking up a part-time role diversifies your salary so you’re not dependent on one source of income—should that one source disappear.
ALWAYS BE NETWORKING
This isn’t necessarily financial advice, but it’s worth noting. Your network is your net worth, and when it comes to having a paying job, it’s all about who you know. Keep meeting with new people, attending networking events, joining professional groups, and staying in touch with old colleagues so that if you get hit with a layoff you have access to people and resources that can help immediately.
UNDERSTAND YOUR OPTIONS
If you’re suddenly let go, it can be overwhelming to figure out your next steps. So take the time now—while you’re in a stable place—to understand the options you have.
Here are some things you might want to look into or think about:
Does your company offer severance pay to those who are let go? If so, how does it work? Unfortunately, there is no legal requirement for employers to pay severance, but you definitely want to ask about their policy. This will help you understand how much of your bare-bones budget might be covered, and for how long, and how much you’ll need to lean on your emergency fund.
If you get laid off, you’ll want to take advantage of unemployment benefits that can help provide some financial assistance. You can apply through your state to get started. Once you collect unemployment, you’ll have to file claims weekly or biweekly and report your earnings and any job offers.
What’s your current coverage, and how would that change if you were laid off? What other options could you consider if you were to lose your insurance? What are you using your insurance for now, and how will you be prepared to cover those expenses?
Your Living Situation
Do you have the option to move in with family or friends if need be? Can you rent out a room in your home or sublet it?
Unfortunately, layoffs do happen, and sometimes when we least expect. So when you do get an inkling that a job loss might be on the way, it’s worth taking even just one of these steps. (And it doesn’t hurt to prep for that layoff conversation, either.) Then you can rest a little easier, knowing you’re better prepared to handle whatever comes your way.