If you're worried about an impending layoff, the good news is you don't have to wait for the bad news: You can prepare your finances for a layoff right now.
It may be unpleasant to think about, but if you think a layoff is looming, it's a good idea to shore up your emergency fund, trim your budget and take other steps to reduce the financial fallout if you do lose your job. Here are some tips you can put into action.
1. Reduce Spending
If you're worried about a possible layoff on the horizon, this is the time to adopt some cost-cutting strategies that have withstood the test of time, such as:
- Examine your budget. You may discover that you've been overspending at the supermarket, on entertainment or in another spending category. Now is a good time for a course correction, where you stick to a shopping list, reduce your discretionary spending, create a bare-bones budget or come up with other ways to cut back spending.
- Use coupons and look for sales. Cut or download coupons at your supermarket's website or at a coupon website. And try to wait for sales to make more expensive purchases.
- Look for cheaper alternatives. You could comparison shop for car insurance and try to find a less expensive policy, save on groceries by buying more store-brand items or switch out premium streaming services for cheaper, ad-supported ones. You might try to negotiate lower utility costs or find a rival provider that can offer electricity, water or garbage pick up for a less expensive price.
- Eat out less. Cooking more often or packing lunches for work can save you a significant amount of money.
- Come up with new spending policies. Better financial habits can save you money. For instance, you might tell yourself you are going to wait 24 hours to make any purchase that you don't consider urgent. Or institute a weekly spending review to make sure you're sticking to your budget.
2. Add to Your Emergency Fund
Personal finance experts often suggest having three to six months' worth of living expenses in your emergency fund—a tall order, but one suggested precisely in case of a layoff. If you do think job loss is imminent, start adding money to your emergency fund—or create one immediately if you don't already have one.
If you don't already have a dedicated emergency fund, you'll want to decide where to put your savings. You have a lot of choices, such as a money market account, savings account or certificate of deposit—but since you may need the money sooner rather than later, your best bet is to find an easily accessible account that earns decent interest, such as a high-yield savings account. Start setting aside as much as you can afford to in this account. This could be money you live on down the road.
3. Pay Down Debt
While you will want to hoard any excess money and sock it away in your emergency fund, at the same time, don't ignore expensive debts. If you can pay off high-interest credit cards, you'll save a lot of money on interest charges and have fewer bills to pay if you do lose your income.
There are several ways to pay off your credit card debt, or pay it down as much as possible. Find one that works for you so you can reduce debt now.
You also, in general, want to continue to keep your credit score in as good shape as possible, or work on improving it if it's in the doldrums. One good way to keep tabs on your credit is to use Experian's free credit monitoring service to see where your credit stands and what steps you might be able to take to improve. If you need to borrow money down the road, one of the best ways to get a low-interest loan is to have good credit.
4. Earn Extra Income
Depending on how much you have in savings and how concerned you are about losing your job, it may be prudent to find a side hustle that will help you stash away more money. A few types of side gigs or strategies you might consider:
- Deliver groceries for a company like Shipt or Instacart.
- Deliver passengers, such as being a driver with Uber or Lyft.
- Offer your services on social media or tell your friends and family that you're interested in taking jobs dog-sitting or babysitting on the weekends or whenever you have free time.
- Find a part-time job at a nearby retail store.
All of this said, if you still have your full-time job and little free time, you may not have the bandwidth for a side gig. Everybody's situation is different.
5. Think About Your Health Insurance
One of the scarier parts of losing a job is thinking about what will happen to your health insurance. But you can lessen your anxiety by researching health insurance plans now.
You may want to continue your old employer's coverage through COBRA, or the Consolidated Omnibus Budget Reconciliation Act, a law that was passed in 1985 that allows employees to stay on their old employer's health plan for 18 months. But this means you would pay your old employer's full cost of your healthcare plan—as well as a 2% administrative charge.
So getting health insurance through a COBRA program is expensive (and it's only available if your company has 20 or more employees).
COBRA may be the first line of defense you consider, but it may be the last you should try due to the cost. Other options for getting health insurance when you're unemployed include adding yourself to your spouse's insurance. Buying health insurance through the public marketplace is another option. Losing a job is a qualified event, which means you wouldn't have to wait until open enrollment if you go that route.
Again, you're just preparing for a layoff, one that may not come. But health care is often a significant chunk of a person's monthly budget. Knowing what you plan on doing if you lose your benefits may help ease your anxiety.
6. Create a Layoff Plan
If you think that a layoff is coming, consider writing up an action plan that you'll take immediately if you get the word that you have lost your job. That action plan might look like this:
- Apply for unemployment insurance benefits. Visit your state's unemployment insurance program website ahead of time, and research how to file for unemployment benefits to get a sense of what you'll need to do.
- Alert business colleagues, friends and family members that you are looking for a new job. Beforehand, compile a list of contact information or write up messages that you can send out if a layoff occurs.
- Put your new spending plan into action. Use the tips above to create a more rigid spending plan than you have at the moment. For instance, maybe you put yourself or the family on a strict allowance or eliminate spending as much as possible.
The Bottom Line
Layoffs are scary, and if you're a nervous wreck right now, you have every right to be. But the more prepared your finances are, the better you're going to withstand losing a paycheck if it does happen. In fact, your goal should be to prepare your finances so well that if you do not lose your job, you will be ahead of the game financially.