While the nation’s unemployment rate remains near record lows, there are also signs that the labor market may not be as strong as those numbers suggest. From Snap to Best Buy and Goldman Sachs, there have been a slew of high-profile layoffs announced in recent weeks across a range of industries.
Fully half of company executives say they plan to reduce their headcount this year, according to a recent PwC survey.
Whether you’re worried about getting a pink slip or not, making some defensive money moves now can help protect your finances in the event of unemployment, so you can focus on finding your next job instead of worrying about paying your bills.
“It’s always better to be proactive than reactive,” says Connor Spiro, senior financial consultant at John Hancock. “Think of it as a stress test for a worst-case scenario. How can you best equip yourself to plan for it?”
The first step is to look at your budget now and cut out discretionary expenses, such as vacations or eating out. Once you’ve freed up some extra cash, take the following steps:
- Build up your emergency fund.
- Reduce your debt payments.
- Consider a side hustle.
- Reconnect with your network.
- Have a plan for health insurance.
Build Up Your Emergency Fund
Traditional advice is to have three to six months’ worth of expenses in a liquid account for emergencies. If you’re concerned about a layoff, boosting that account to six months’ to a year’s worth of expenses will give you an additional buffer while you look for a new job.
Reduce Your Debt Payments
If you have high-interest credit card debt, it’s only going to get more expensive as interest rates rise. Focus on paying that off or transferring or consolidating it into a lower interest rate loan.
“What you don’t want to do is go into a job loss or reduction in (compensation) with big credit card bills that you’re not able to pay,” says Isabel Barrow, director of financial planning at Edelman Financial Engines.
Consider a Side Hustle
In addition to freeing up money by cutting back on expenses, you can boost your income by taking on a side hustle. This could be freelance or consulting work in your field (if you’re allowed to by your employer), a hobby that earns you some extra cash or gig work like driving a rideshare or for a food delivery app.
Reconnect With Your Network
If you stopped going to industry events during the pandemic, now might be a time to start showing your face again. Checking in with former coworkers or classmates at other companies now may also be a smart move, if you need to re-establish those relationships. In addition to helping out with job opportunities, your network can give you insight into your industry, including salary levels and the requirements for positions in which you might have interest.
“Make sure your skills and your LinkedIn profile are up to date,” says Shawn Tydlaska, a fee-only certified financial planner and founder of Ballast Point Financial Planning in San Francisco. “That way if you do get laid off, you’re employable.”
Have a Plan for Health Insurance
If you get laid off, your employer will no longer contribute to your health insurance. It’s important to maintain coverage, and you may be able to do so through the Consolidated Omnibus Budget Reconciliation Act (COBRA), which lets you continue paying for the health insurance you got through work.
Losing your job is also a qualified event, which could allow you to get insurance through a spouse’s employer or the public marketplace without waiting for open enrollment.