It's a rough time, but it doesn't have to be a disastrous one.
How to Prepare Your Finances for a Layoff
One of the big fears in life is seeing your finances thrown into turmoil by a layoff. If you think your job might be slashed, you should be positive that you’ve received a warning. Most employees never have this luxury, and it leads them into debt. Make sure you stay free from debt through making preparations for your eventual layoff.
This guide is going to show you how to prepare your finances for a potential layoff at your company.
Want to keep up with more financial news? Click here to sign up for our free newsletter.
1. Cut spending immediately
Spend as if you’ve already lost your job. Begin padding your emergency fund immediately by cutting most of the luxuries that you indulge in because 66 million Americans don’t have one. This is also a good time to review your finances. Take a look at your spending and think about where you can make cuts.
Your aim should be to get as many months saved as you can. Ideally, you should be able to survive for at least six months without going into debt. But even if you can’t make six months, anything is welcome.
2. Reduce your savings contributions
It may seem counterproductive, but you need to start thinking about the here and now. Debt is a real possibility and you don’t want to throw your finances into difficulty through contributing to pension plans and other employee funds. You need to think about your immediate future, not your future 30 years from now.
Stop contributing your salary to these funds and take what you would have contributed for the purposes of your emergency fund. This will help you to get rid of debt and make sure you don’t have to take out any credit card debt, at least in the immediate future.
3. Deal with the health insurance issue
The worst case scenario is you lost your job and two months later you fall seriously ill. This can cripple your financial health and leave you with huge medical bills. Most people take a chance and assume they’ll find another job and another employer-sponsored healthcare insurance plan before then. But is this really a chance you want to take with your money?
Deal with debt in the making by navigating the health insurance issue. Americans have tons of credit card debt and you don’t need to add to it. Consider whether you qualify for federal COBRA healthcare coverage. Remember that your former employer will still cover you for a month after you leave, so you still have time.
You should also inquire whether your spouse’s healthcare program covers partners. If it does, you don’t need to worry.
4. Tap credit…but do it now
Anyone who has assets knows that they can release some equity if they need to. This will save them from going into credit card debt. The problem is going into mortgage debt isn’t easy if you’re unemployed. You should tap any credit before you get laid off. Lenders want to see that you’re employed. They’re not going to check afterward and by then it’s too late so you don’t have to worry about what happens afterward.
Make sure you tap any credit while you still have a job. This is an educated decision you have to make because only you know how easy or hard it will be to find another job.
5. Start developing an income stream now
The worst mistake you can make is to wait until the layoff happens before you act. Review your finances and work out how much money you’re going to need to survive. Begin replacing that income stream immediately.
The first step is to start searching for another job. Again, it’s generally considered easier to find another job if you already have a job. Use that little time you have to secure employment. If you can find a job during this time, the panic is over and you don’t need to worry about getting into debt.
However, if you do have to survive for a while you should consider picking up some part-time work. You might become a driver for Uber, or you may rent out a spare room in your house. You could even start a part-time freelancing business. All you need is money, so get creative.
6. Conclusion – a worrying time
These are worrying times and you might be scared about the road ahead. There’s nothing wrong with that and it’s perfectly normal. But don’t make the mistake of burying your head in the sand. Take positive action and you’ll find yourself well-equipped to handle the turmoil ahead.
This article was originally published on Debt.com.
Published by Debt.com, LLC