By In the midst of massive layoffs by big corporations, many employees are concerned about job security. According to the global outplacement company Challenger, Grey & Christmas, last month was the worst October for layoff announcements in over two decades. Furthermore, the prolonged government shutdown, which is now the longest on record, has left thousands of federal employees furloughed or working without pay.
There is never a good time to leave your job, and you may not even be aware that a layoff is imminent. However, there are a few things you can do right now to secure your financial stability in the worst-case scenario.
5 Steps to Protect Your Finances from Job Loss
If you’re concerned about a potential layoff, don’t wait until the awful news arrives to take action. There are things you may take to prepare yourself to weather a period of unemployment.
1. Understand your rights and benefits.
Understanding your rights after a job loss, as well as the benefits available to you, will help guarantee that you receive everything to which you are legally entitled.
Examine your employment contract to see what happens to your insurance benefits upon termination, whether you’ll continue to have access to any employee perks after your work ends, and whether you’re eligible for a severance package.
You should also go to your state’s unemployment website, as each state has its own qualifying and filing requirements. Learn more about waiting periods, necessary documentation, and benefit amounts (including duration).
Once you’ve gathered this knowledge, you may devise a strategy in case you lose your work.
2. Review your budget and prepare a backup plan.
Begin by examining your existing monthly expenses and income. You can use a budgeting tool or an Excel spreadsheet to separate fixed and variable spending. This will offer you a clear picture of where your money is going right now and where you should cut back.
Once you’ve established your baseline, the next step is to design a slim version of your budget that you can easily switch to if your revenue drops. This version should only cover essentials like shelter, food, transportation, insurance, and minimal debt payments.
Reduce discretionary spending in this slim version of your budget, such as subscriptions, gym memberships, eating out, or streaming services. The idea is to determine the absolute minimum required to live comfortably while job looking.
While losing a job is never ideal, knowing your figures and having an alternative budget on hand can help you make better educated decisions about how to spend your remaining income and resources more effectively.
3. Increase your emergency savings.
An emergency fund provides a financial buffer when something unexpected happens, such as when your car breaks down, you have a medical emergency, or you lose your job. Many experts recommend saving three to six months’ worth of living expenses in an emergency fund, but you may want to aim higher to allow yourself more breathing room if it takes several months to locate a new job.
Your individual circumstances will determine how much you can easily donate to your emergency fund each month. However, one approach to make your balance increase faster is to deposit your money in a high-yield savings account, where it will earn a competitive interest rate.
4. Make paying down debt a priority.
Prioritising debt repayment is always a good idea, but it’s more vital if you’re concerned about losing your job. Monthly payments and interest charges eat into your hard-earned money, which could be better used to fund your basic needs.
Making extra payments towards your obligations today will reduce the amount owing, lower your overall interest rate, and allow you to pay off those payments months or years sooner.
You should also evaluate the terms of your existing debts to see if refinancing would result in a cheaper interest rate. If you are unable to make your payments, you should contact your loan provider or credit card company to see if they provide any form of hardship aid or forbearance programs.
5. Diversify your income sources.
Having multiple sources of income means that your financial security is not just dependent on one job. Now is an excellent time to assess your professional abilities, certifications, and interests, which could lead to income-generating prospects.
Even if you work full-time, consider dabbling in freelance work that could lead to a steady income in the future, such as writing and editing, graphic design, virtual assistant or administrative support, bookkeeping, tutoring, or consulting in your profession.
Just make sure you’re not breaking any rules your current employer has about outside work. Also, keep comprehensive records of your side income and expenses, as you will need this information when filing your taxes.
