I can speak from experience that you should financially prepare for a layoff, just in case.
The truth is that no one expects to get laid off, but it happens.
Four months after purchasing our home, I remember having to tell my husband that I had just been laid off. I was completely blindsided.
Even though layoffs had been happening at my job, I never imagined that it would be me—which is usually how it goes.
Despite being hurt, disappointed, and even angry, I was grateful that we had proactively taken financial steps that made it less of a crisis.
So I want to share some steps that you can take to be financially prepared in case you may be faced with a layoff.
Why you should financially prepare for layoffs
According to the Bureau of Labor Statistics, an average of 16.5 million Americans got laid off each month in 2023. Though several factors impact this number, it’s still a statistic to note.
The reality is that if you’re employed by a company, there is always the risk of a layoff.
Layoffs can be the result of broader economic factors, like a recession, or simply due to a business’ poor financial performance.
These are both signs that can alert you of the potential risk of layoffs.
Knowing this, it’s important to be proactive when it comes to your finances.
8 Steps to financially prepare for a layoff
Wouldn’t you feel less anxiety about possibly losing your job if you had a financial plan in place?
I’m sure the answer is yes, so let’s break down what that looks like.
1. Assess your current financial situation
Have you considered how you’d maintain your lifestyle if you were to lose your income? If you haven’t, now is a good time to evaluate your current financial situation.
- Reviewing your current household income
- Calculating your monthly expenses
- Totaling up your debt
- Evaluating how much money you have saved
Based on this, calculate how long you will be able to afford your basic necessities—food, shelter, transportation—without being employed.
For most families, the stark reality is not very long. If that’s the case, then the next step is to start making adjustments in your finances. This starts with a budget.
2. Create a budget and cut unnecessary expenses
Budgeting your money shouldn’t just be something that you do when a layoff is looming. It’s essential to everyday money management.
Creating a budget will allow you to see how your income is being allocated and opportunities to save money.
Now, if you need help creating a budget, I suggest reading our article on how to create a family budget.
Nonetheless, once you have a budget created, identify non-essential expenses that you can cut. This can include things like unused subscriptions, membership, or excessive dining out and shopping.
You’ll have a clear picture of what you can do once your budget is created.
In addition to simply cutting expenses, now is a great time to also negotiate bills and other expenses for a lower rate.
3. Build an emergency fund
Now that you have a budget, an important line item to add is savings.
Having money set aside in a high-yield savings account can provide a financial cushion if you were to lose your job.
Specifically, an emergency fund is intended to help you weather unexpected expenses and lapses in income.
Generally, the rule of thumb is to have 3-6 months’ worth of your expenses saved for emergencies. This coincides with the average time that it takes to find a new job. However, I’d advise that you save as much as necessary to feel comfortable.
I recommended reading our article on how to build an emergency for strategies and tips to save quickly.
4. Pay off outstanding debts
I’ll be honest, our saving grace after I was been laid off was the fact that we had spent the years prior paying off debt.
So an important piece of advice that I’ll give is to pay off as much debt as you can while you’re still employed.
There’s nothing worse than having debt looming over your head when you don’t have the income to pay it off. The inability to pay back debt one time can result in damage to your credit, which can be an important factor in your financial goals.
Though there are some options available to your if you’re unable to make your debt repayment, the best scenario is to not have debt at all.
The less debt that you have, the fewer expenses you’ll have to worry about covering if your household income is reduced.
There are several ways that you can approach paying off debt. You can read our article on how to pay off debt quickly to get some ideas.
5. Find additional streams of income
I’ve always been of the belief that you should never put all of your eggs in one basket. Simply put, relying on one source of income is risky.
After getting laid off, I couldn’t stand by this statement anymore.
If you haven’t already, consider starting a side hustle, freelancing, or taking on a part-time gig that will allow you to make money outside of your job.
Find something that has the potential to scale and be a significant source of income—even if you decide not to pursue it full-time.
Of course, we have tons of articles on ways that you can make extra money that you can get ideas from.
6. Take advantage of employee benefits
Now is the time to take advantage of those employee benefits while you have them. This includes taking advantage of the fact that you probably have employer-sponsored healthcare.
So while you’re still employed, be sure to get your annual medical exams and any other necessary procedures.
This is important because the cost of medical insurance is significantly more when you’re no longer on an employer, or group, plan.
In that same vein, max out your health savings account (HSA)—which is a tax-deferred account that can be used even after you’re no longer with your employer. This ensures that you already have money set aside for medical expenses that may come up after a job loss.
If your job also offers benefits like trainings and educational benefits, take advantage of those too. These are great ways to enhance your skills and become more marketable during a job search.
7. Enhance your skills and professional brand
Even without possible layoffs, it’s always important to consistently improve and develop new skills. Naturally, we should all strive to become better in our professions and interests.
However, when it comes to preparing for a layoff, you’ll want to position yourself for future employment opportunities. This means that you should invest in education and professional development that will make you more marketing.
Not sure what to focus on? Identify skills that are high in demand within your field or even others.
In addition to utilizing employee benefits like trainings and conferences, take advantage of online resources as well.
We’ve already written an article on high-income skills that you can develop if you’re looking for ideas.
8. Develop a contingency plan
You’ll want to have a plan in place that you can execute if the worse happens. This means that if you’re laid off, you have a plan on how to handle your finances and how you’ll go about replacing your income.
For example, my husband and I created a budget that reflected expenses we’d cut if we were to go down to one income. Fortunately, we didn’t have to use it; however, it was good to know exactly what to do if need be.
An important part of this plan is also knowing what options you have as an employee. For instance, most layoffs come with severance pay and benefits.
It may be a good idea to review your employee handbook to see what that would entail and what you’d be entitled to.
How to financially prepare for a layoff: Final thoughts
It’s important that you maintain a positive mindset while still being proactive with your finances. Ideally, you won’t be affected by layoffs. However, it’s important that you prepare.
Set clear goals and a timeline to implement each of the steps outlined above. This will help you stay on track and feel secure knowing that you’re making the right financial moves for your family.
Taking the steps mentioned in this article should help relieve some of the stress that can come with layoff because you’ll feel more prepared.
It’s important to be financially prepared, so take action and don’t wait!
Have you ever experienced a layoff? Share in the comments below.