Preparing for financial headwinds

3/26/20233 min read

layoff personal finance lost job
layoff personal finance lost job

The headwinds facing both my industry and the economy writ large are real. I hate the topic of layoffs, but being financially prepared can help alleviate some of the mental stress and also provide a runway to find a new path that’s the best fit. This topic has been on my mind, and here are a few thoughts on ways to prepare financially if you think layoffs may be on the horizon.

  • Bolster Your Emergency Fund. Conventional wisdom in personal finance is to keep an emergency fund sufficient to cover three to six months of expenses readily accessible. If you’re anticipating layoffs, it may make sense to bump your fund toward the higher end of that range by increasing your savings rate (more on this below).

    Obviously this won’t be possible for everyone, but regardless, bump up your savings cushion as much as you can. Interest rates on high yield savings accounts have been increasing, and some banks will give you a bonus for keeping a certain balance there. For example, Sofi just increased the rate on their savings account to 4.00% and periodically offers new account bonuses if you sign up for direct deposit and maintain a certain balance over a period of time.

  • Look at Your Expenses. If you don’t yet have a solid budget, I have thoughts on ways to build one here. If you haven’t taken a look at your budget in a while, think about taking another look for potential areas to cut spending, especially recurring expenses.

    For example, with all the various subscription services, it’s easy to carry extra subscriptions you don’t really use. Still holding on to that extra Amazon Video channel you signed up for because your kids wanted to watch a certain show that you promised to cancel? Still paying for a gym you don’t actually use?

    Taking stock of your expenses and figuring out where you can trim will also help you get a handle on how much to target holding in your emergency fund, as you can figure out your monthly expense baseline. I have some suggestions on areas to save money here.

  • Consider a No Spend Period. Our family usually does a “no spend” January to reset from the holidays. You can define the rules for this type of exercise, but ours is to limit spending to food (groceries, no eating out), necessities (housing, utilities, gas, etc.), and recurring memberships that don’t make sense to cancel for a month.

    This can actually be a fun way to re-center, focus on non-monetary things, and think creatively about activities. It can also help reset your baseline when you’re looking at expenses and where you might be able to make cuts.

  • Reassess Retirement Contributions. It’s generally a good idea, if your cash holdings are sufficient, to contribute to retirement accounts at least up to the amount that will maximize your company’s match (in normal times, I’d advocate for 15%, but as noted above, when layoffs are in the picture the cash position becomes critical, and you have to make the best decision for your personal circumstances). If that’s a certain dollar amount and you anticipate layoffs looming, think about whether there are steps you need to take to get the full benefit of the match, assuming that fits in your overall financial plan.

  • Look at Your Benefits. Consider taking advantage of health benefits while they’re available to you, including scheduling any appointments you’ve been putting off. If you have a Flexible Spending Account or a Dependent Care Account, make sure you understand the rules of when you need to incur expenses and submit receipts under your company’s plan. Submit any outstanding receipts promptly. Also, make sure you understand how to access employment-related accounts for which you currently use Single Sign On (for example, by setting up a unique login).

Most importantly, I hope everyone is taking care of themselves. It's tough out there! If you have tips or anything I've missed, I'd love to hear from you!

Disclaimer: I am not certified in financial planning, nor am I familiar with your personal financial situation. These are my thoughts grounded in my experience, which will differ from yours. Please run any of these ideas by someone familiar with your situation!