Preparing your finances for a potential layoff is a prudent step to take, as it can help you navigate the financial challenges that may arise during a period of job loss. Here are some steps you can take to prepare your finances for a layoff:
- Create an Emergency Budget: Review your current monthly budget and identify areas where you can cut expenses. Prioritize essential expenses like housing, utilities, groceries, and insurance. Consider temporarily reducing discretionary spending, such as dining out and entertainment.
- Build an Emergency Fund: An emergency fund is a crucial financial safety net. Aim to have at least three to six months’ worth of living expenses saved in a liquid, easily accessible account, such as a savings account. If you already have an emergency fund, consider bolstering it if possible.
- Assess Your Debts: Review your outstanding debts, including credit card balances, loans, and mortgages. Create a plan for managing your debt during a period of reduced income. Contact creditors if you anticipate difficulty making payments to discuss options like deferment or forbearance.
- Review Insurance Coverage: Ensure you have adequate health, life, and disability insurance coverage. Understand the terms of your health insurance continuation (COBRA) and how unemployment may affect your coverage. Adjust your insurance policies as needed.
- Explore Unemployment Benefits: Research the unemployment benefits available in your area, including eligibility criteria and the application process. File for unemployment benefits promptly if you experience a layoff.
- Contact Your Retirement Accounts: If you have a 401(k) or similar retirement account through your employer, consider your options. You may be able to leave the funds in the account, roll them over into an individual retirement account (IRA), or cash them out. Be aware of potential tax consequences and penalties for early withdrawals.
- Review Investment Holdings: Assess your investment portfolio and make any necessary adjustments based on your financial goals and risk tolerance. It may not be the best time for aggressive investments if you’re facing a layoff.
- Cut Non-Essential Expenses: Temporarily reduce or eliminate non-essential expenses like cable subscriptions, gym memberships, and other discretionary spending to conserve cash.
- Explore Additional Income Sources: Investigate opportunities to generate additional income, such as freelance work, part-time jobs, or gig economy work. These side gigs can help cover expenses during a layoff.
- Network and Prepare for Job Search: Start networking and updating your resume and LinkedIn profile in advance of a layoff. Being proactive about your job search can reduce the duration of unemployment.
- Seek Financial Guidance: Consider seeking advice from Matthew Jennings, JD, MBA, EA, RFC®, CEP®, CES™, aka Tax King Matt. He can provide guidance on managing your finances during a layoff and help you create a financial plan.
- Stay Positive and Stay Informed: Stay positive and focused on your financial goals. Keep yourself informed about developments in your industry and the job market. Use this time as an opportunity to learn new skills or further your education if it aligns with your career goals.
Remember that financial preparedness is a long-term strategy that can help you weather unexpected financial challenges. It’s essential to take these steps proactively, even if you’re not currently facing a layoff, to ensure you have a financial safety net in place.