In light of several major companies announcing layoffs earlier this year, you might be pondering how to fortify your finances in case your job is next on the line.
According to Anne Lester, a personal finance expert and author of “Your Best Financial Life: Save Smart Now for the Future You Want,” slated for release later this month, the key to safeguarding your finances during a layoff is planning.
“The most important thing you can do is actually understand what you’re going to do beforehand,” she tells CNBC Make It. “That way, when you’re under stress, you don’t also have to stress yourself out by trying to figure all this stuff out on the fly.”
Here’s how to create a plan now if you’re concerned about potential layoffs in the future.
Make a list of expenses to trim down
Begin by comprehending your expenses while you’re still employed and earning income. Then, devise a list of expenses you could immediately cut if you lose your job, advises Lester. “There are some things that really aren’t very painful to cut out that you’re probably spending a lot of money on, like streaming services,” she says.
As finding another job may take time, formulate a plan for progressively reducing your expenses over time. “Have a list of the expenses you’re going to cut immediately and then know if I don’t find a job in a month, I’m gonna dig deeper and cut these [other] expenses,” Lester says.
Having this checklist prepared in advance can prevent impulsive decisions about which expenses to eliminate at the moment. “When you get super stressed out, our ability to make good decisions diminishes significantly,” she says.
Also, remember that you won’t be relinquishing your subscriptions or other items on your list permanently. Consider your checklist as a short-term strategy to help reduce your expenses until you secure your next job. Once you do, you can create a new budget incorporating those expenses.
Augment your emergency fund
Additionally, strive to bolster your emergency fund. Ideally, it should encompass enough cash to cover approximately three to six months of living expenses. However, if you haven’t reached that goal yet, you’re not alone. Recent data from Bankrate shows that nearly 60% of U.S. adults wouldn’t be able to cover a $1,000 emergency expense with their savings.
That’s why understanding where your money is allocated is critical. A clear comprehension of your spending habits enables you to identify areas where costs can be reduced. You can then reallocate that money toward your emergency fund.
You might realize you could save money by bringing your lunch to work instead of dining out, or that you’ve been paying for a subscription you no longer need, Lester says.“There are all kinds of ways you can start cutting back without feeling like you’re being deprived,” she says.
