Personal Finance

How to Prepare for a Possible Layoff

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The economy is getting better, companies seem to be hiring, and people are generally more optimistic about the future. You feel secure in your job so you can forget your worries, right? Wrong! Now is the best time to prepare for a possible layoff.

If you wait until rumors swirl about your company’s financial hardship, bad economic news or another full-blown crisis, it could be too late. Preparing for the worst is much easier when things are going well. Here are some tips on how to prepare for a possible layoff right now.

1. Boost Your Knowledge

There are two ways you can prepare by learning. One is by increasing your financial literacy. Get educated on finances in general and your finances specifically. Many nonprofit organizations, schools and even banks offer free or low-cost workshops or classes. Some topics to consider include budgeting, investing, saving for retirement, homebuying, etc. Just beware of the sales pitch — you don’t have to work with these companies after the classes unless you want to. You can also utilize your local library for free access to books on personal finances. The more you know about financial planning, the better you can ensure your own financial future.

Also, think about taking some classes to increase your value and set yourself up for career advancement. Perhaps there is a professional certification or degree that could help you get to the next level. Research these options to see if they are a good fit for you.

2. Grow Your Funds

If you don’t have an emergency fund, start one now. Start with that $5 bill in your pocket or that extra $100 in your checking account. Or perhaps your tax refund can give you a good boost. If you already have an emergency fund, start bulking it up. Increase your contributions by an amount that you will barely notice in your daily budget — try between 1% and 5% of your paycheck. This will not only help you if you get a pink slip, but it can help you rest easier now. Knowing you are financially ready for the unexpected means you don’t have to panic.

There is much debate about how much you need to have in your emergency fund, but ultimately something is better than nothing. In general, three to six months may be enough to accumulate in an emergency fund. If you work in an industry with a lot of uncertainty or you don’t have a lot of flexibility in your monthly expenses (i.e. you already lead a pretty frugal lifestyle and won’t have a lot to cut back on in the event of a layoff), six to 12 months may be a better target. Figure out what number will make you feel comfortable and start working toward it.

Growing your emergency fund should happen alongside your other financial goals. Don’t stop contributing to your retirement plans — still make sure you get any company 401(k) match and set yourself up for a comfortable retirement. Just make sure you earmark some money out of every paycheck to build up your emergency fund also. It doesn’t have to happen all at once, but you should have a goal and a plan in mind.

3. Have a Backup Plan

This is sometimes referred to as a side hustle. It’s often a second job. Sometimes it’s a hobby that allows you to bring in some money. Look for part-time jobs that work around your full-time  one. If you are artsy or crafty, consider selling your work online, in stores or at craft fairs. The idea is to get a second source of income. The “extra” mony can be put toward your emergency fund.

Plus, if you lose your job, you will still have money coming in from your side gig. This can extend how long your emergency fund will last. It can buy you valuable time as you search for your next full-time job. In some instances, you may be able to ramp up work on your side job to full time.

4. Pay Attention to the Signs

Be aware of the climate at work. Stay alert for clues that the company isn’t doing well or may soon be downsizing. You don’t have to listen to every piece of gossip, but you don’t want to be the last to know when the layoffs are coming!

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