Financial planning tips to prep you for a layoff.
Losing your job is scary. Dang, even the mere thought of losing your job is scary. But, whether those layoff rumors are just that, or the firings, downsizings, and/or dismissals are already underway, there are some things you can do to prepare yourself both financially and mentally. So check out these 4 practical steps to cope with job loss, and see how you can turn adversity into opportunity.
The Wyshbox Blog
- Build a rainy day fund
- Trim unnecessary spending
- Make a survival budget
- Consider job loss insurance
- The bottom line
Build a rainy day fund
A rainy day fund is the number one thing you can do to prepare yourself against job loss. Having a good chunk of cash to help cover expenses in case of an emergency is sage advice in the best of times, but this financial prescription is a million times more relevant nowadays (ya know, covid and all). The rule of thumb is to set aside 3-6 months of living expenses—ideally in a high-interest savings investment account. And that money needs to be untouchable. Sacrosanct. Not available for dipping into when you want a new pair of shoes.
The secret to building a foolproof emergency fund is to automate it. Like most things, saving money doesn’t just “happen” so you have to prioritize it—but in a way that you don’t have to constantly think about it. Try setting up your accounts so that each time you get a paycheck some of that money goes straight to your savings account. For example, you might choose to simply have $50 moved each week from your main checking account to this emergency savings account. At the end of the year, you’ll have somewhere around $2,600 in this account. So yeah, there’s a reason why they say “pay yourself first” (and don’t ask us who “they” is ‘cos we don’t know either).
Trim unnecessary spending
Did you know, half of Americans subscribe to five or more services, while more than 20 million have 11 and up to 21 subscriptions? We know, we know, it’s annoying that Emily in Paris is on Netflix, while WandaVision is on Disney+, and Pen15 is on Hulu. And yeah, it’s hard to commit to one streaming service when all the good stuff is sprinkled between a few. But when you’ve lost your job, beggars can’t afford to be choosers (and we say that only with love). So take a moment to think about all of your subscriptions—this includes things outside of streaming platforms, from dating apps to subscription boxes. Calculate how much you pay each month, gasp, compose yourself and then think about which of those things you can live without. If you want to get into the nitty-gritty yourself, you can always review your bank statements to see—and possibly cancel—those subscriptions. Or, you can download apps that’ll do the legwork for you such as Truebill, Trim, and Bobby. Another little hack is to head to your Apple settings menu or go to the Google Play Store to see all of your auto-renewing app-based subscriptions and cancel those you don’t need.
Make a survival budget
So now that you’ve trimmed some fat from your subscriptions (and your rainy day fund is coming along nicely), it’s time to update your overall budget. Because with a potentially big income change coming, you’re gonna want to find a way to survive for as long as possible—until you get a new job. Remember, the average amount of time it takes to find a job is about nine weeks. And nine weeks go by pretty slow when you don’t have a job to keep you busy. So start by creating a bare-bones budget that only includes the essentials. Basically the things that keep the lights on; things like rent, food, utilities, insurance, transportation, etc. And there’s no room for dilly-dallying here: you need to get real with the numbers. Start by looking at what you have in savings, then look at what expenses you can postpone. Now’s a good time to review any current debts you have. This could include car payments, credit cards, mortgages, and more. Make a list and write down the name of your lender, how much you own, the minimum payments, and the due date. Once you have a good picture, see if you can finagle yourself a deal with those lenders and maybe get on a payment plan.
Remember, your priorities now are to feed your family, keep the lights on, pay for your home and maybe have enough money on your subway card to get to your interviews. At the end of the day, your rainy-day fund won’t get you very far if you try balling on a limited budget.
Consider job loss insurance
This type of insurance does exactly what it says on the tin: it gives you a temporary income if you were to ever lose your job. But, if you were fired, quit, or retired, you won’t be eligible for any of these payouts, sorry. To break it down, there are three types of job loss insurance: the government kind, the supplemental kind, and the add-on kind. So one comes from our overlords, one you can buy separately, and a third you can get as an add-on with other insurances that cover bigger risks, e.g. as a life insurance rider.
With the first two kinds, the benefits are clear cut—if you’ve lost your job due to no fault of your own, you’ll get a monthly or lump-sum payment to cover loss of wages. And by combining the two, you could potentially see payouts that equal a max of half your weekly pre-tax income paid by your last employer. With the add-on kind, you can get this as part of another insurance plan, like life insurance. And again, the benefits are roughly the same—you get some money if you’re laid off. But with this type of insurance, the job loss part is just a sliver of the pie. You’ll already be paying monthly premiums so one could argue that it would make more sense to also get a deal that’d take care of your mortgage, car payments, student loans, etc. if you kicked the bucket tomorrow. Along with temporarily covering your bills in case of job loss, some life insurance plans start at just $10 a month so sometimes it might be cheaper to go this route vs. the supplemental job loss insurance route. If you think about it, it’s kinda like supersizing your job-loss meal for a few extra bucks. (Did someone say more fries?)
The bottom line
In today’s world, losing a job has become somewhat of a shared trauma. However, if you plan ahead there are some steps you can take to soften the blow and ease some of your fears. In reality, the key to surviving job loss is to get real about its possibility. And, who knows, maybe the threat of job loss is exactly the kick up the butt we all need to start making better financial decisions. So make a plan now and start preparing for the unexpected—because being financially and mentally prepared can make managing this process a little easier.