10 Steps to Financially Prepare for a Layoff

Inflation and rising interest rates are squeezing Americans' personal budgets, making an interruption in income a scary prospect for many workers. Unfortunately, businesses are also experiencing these economic pressures in the form of higher costs for materials, shipping, real estate and labor, leading some employers to lay off staff to balance the books and stay profitable.

Unlike a firing, which must have cause to back it up, a layoff can happen to any worker at any time—even top performers. In other words, no job is completely secure, so it's best to plan ahead.

Here are 10 things you can do now to minimize the financial impact of a potential layoff.

1. Revisit Your Resume

It's good practice to update your resume on an ongoing basis to include new titles, responsibilities, skills or certifications you've acquired. But if you haven't done so in a while, now's the time to revamp your resume so you'll have it ready should the need arise. And don't forget to ask a friend or family member to proofread it for you: According to a 2022 study by job search engine Adzuna, almost two-thirds (63.6%) of resumes in the U.S. contain at least one spelling mistake, and 1 in 10 had five or more errors—a red flag for potential employers.¹

2. Leverage LinkedIn

Take the time to update your LinkedIn profile as well, and make it look as professional as possible. Moreover, use the platform to reach out to former colleagues or friends in your industry whom you've lost touch with. By rekindling those connections now, you'll feel less awkward later if you're laid off and want to approach them about job leads. Alternatively, you may hear about a great opportunity to follow up on without having to ask.

3. Begin a Pre-Emptive Job Search

The best time to find a job is when you already have one, so you might want to start looking at, or even consider applying to, positions early. Besides, it will be helpful to see what qualifications employers want for the jobs you're interested in, so you can upgrade your skills or certifications if necessary. Be sure to use your own computer and internet connection when conducting your search, so you don't contravene any of your current employer's policies.

4. Review Your Employment Contract

Receiving news of a layoff can be extremely disorienting, so it's best to locate and reread your employment contract and your company's human resource policies in advance to make sure you're treated fairly. Look for details surrounding notice, severance, unused vacation time, and any benefits (such as retraining or placement services) that may be included. But also look into the employment laws in your state (since there can be a minimum notice requirement of 60 days in some scenarios), as well as the rules to apply for and qualify for unemployment.

5. Lower Your Spending

In preparation for the possibility of reduced cash flow from a layoff, it's wise to start decreasing your spending. Look to discretionary expenses (like travel and entertainment) first, with an eye to lowering, if not eliminating, some of these costs. For example, if you're not willing to forgo a family trip, you could instead consider a shorter stay to keep costs down and enjoy the rest of your holiday together at home. Also look for recurring monthly expenses that you can cut out, such as subscription or membership services that you may not be using much, or ways you can cut back, such as taking steps to lower your energy bill or save on gas.

6. Pay Off Debt

With interest rates rising, one of the smartest things you can do with the cash you save from reducing your spending is to pay off debt. That's because as you pay down the money you owe, your monthly debt-carrying costs will decrease, allowing you to save even more. Start with the highest-interest debt first, since that will save you the most in monthly debt service payments, and consider these tips to help reduce your debt.

7. Build Up an Emergency Fund

Another prudent course of action is to put your savings into an emergency fund, which will provide a cushion to draw from if you lose your income. Most experts suggest keeping three to six months of expenses in your emergency fund, which will help you make ends meet (without the need to take on additional debt) during a stretch of unemployment. But be sure to choose the right kind of account for your emergency fund: you'll want a bank account that pays high interest on your deposits, and that also allows you to withdraw funds at a moment's notice without penalty.

8. Use Your Perks

We all get busy and might put off scheduling routine medical appointments. But if you have employer-provided health and dental insurance, now is the time to see your family doctor, eye doctor, dentist and any other provider of health and wellness services you have coverage for. Similarly, be sure to take advantage of any perks your employer offers, such as discounts on company products or services.

9. Look into Your Pension

If you have an employer-sponsored pension plan, make sure you understand how much it's worth and what you can do with that pension after a layoff. Defined contribution plans, including 401(k)s, typically provide a lump sum payout, which may affect your annual income taxes. Defined benefit plans, on the other hand, must usually stay invested until you start collecting your retirement benefits. Check your pension plan statements or consult with your plan administrator to find out the rules in your situation.²

10. Start a Side Hustle

Getting a second job on a part-time or freelance basis can help you in a few ways. First, it's an opportunity to try something different that you may have always been interested in but didn't want to do full-time. Second, if you're laid off, you'll still have at least some income from your second job. And third, you may be able to spin that side work into something larger, at least temporarily, if you end up having a hard time finding a position in your original industry.

Of course, if your second job is in the same field as your first job, make sure you aren't breaking any of the conditions in your employment contract, such as a non-compete agreement.

The Last Word on Layoffs

Experiencing a sudden layoff is never easy; indeed, it can be nearly as stressful as the death of a loved one or a personal injury.³ But by taking some time in advance to prepare yourself and your finances for a potential layoff, you can hopefully avoid the added stress of taking on additional debt while you look for your next opportunity.

 

Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in the Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.

 

LEARN MORE: Rethinking Your Family’s Finances After a Layoff

 

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