Economic data may show a strong labor market, but tech layoffs are picking up.
This year Peloton, Microsoft, Robinhood, Coinbase, Netflix, Shopify, Lyft, Twitter, and Meta all announced significant staff reductions. Others such as Google, Apple, and Amazon have announced hiring freezes.
With job cuts expected to be up by 48% year-over-year, there are bound to be more layoffs on the horizon. For those at the lower and mid rungs of the corporate ladder, losing a job during an economic downturn can be traumatic and set off a myriad of financial problems.
Albeit, taking intentional steps toward your finances can reduce the effect of a job disruption and boost your odds of a positive next chapter. If you still have a job, you may be working on borrowed time. This may be the final stretch to put your finances in order before you get the ax.
Here are several steps you can take now to prepare your finances and soften the effects that come with losing a job.
The flurry of job losses has highlighted the importance of having emergency savings.
The usual rule of thumb is having 6-months worth of your salary stashed in a separate account. However, given the direction of the economy, coupled with rising consumer prices, you may have to increase your threshold. If possible, save one year's worth of salary.
Rising consumer prices have forced many to pinch their pockets for money. However, with the threat of sack ever looming, now may be the time to tighten your budget even further.
Revisit your budget and look for areas where you can lower your monthly expenses. If you eat out frequently, you may consider cooking at home. Buy generic brands, reduce social outings and look for subscriptions which you can do away with for now.
While this will help you save money, it will also enable you to develop the frugal lifestyle you'll need to get by if you lose your job. You are inadvertently training yourself.
This is not the time to depend on one stream of income.
The more streams you have, the more chances of making more money and even reducing the effect of a job loss. You can create multiple streams by starting a side hustle, getting a second job, or monetizing your skills.
Rather than having money sitting in your account, why not put your funds to work?
Even though the economic downturn and interest rate hikes have reduced the valuations of assets, there are still areas where you can get decent returns for your investments. You can consider investing in bonds, for a start.
Setting money aside is the first step towards financial independence.
With economic uncertainty abounding, you can never be sure of how much you would need to get by when the ax falls.
Try to increase your savings. If you save 10% of your monthly income, try to double that amount. Any money set aside will go a long way to help. Also, knowing that you have enough money stashed somewhere reduces the anxiety that comes from the fear of a job loss.
It's no good paying for debt when you are out of a job.
It rolls back whatever progress you have made toward attaining financial independence. Since you are still employed, this is the time to double down on your debt payment and reduce what you owe.
Start with those with the highest interest rate and work your way down.
Whenever you are paid, increase your monthly contributions.
You will still need to pay your debt anyway regardless if you have a job or not. So why wait?
The economic downturn has made a lot of people depend on credit cards just to get by.
Credit card debt has soared above pre-pandemic levels. This implies that a lot of jobless people will be faced with huge debt. If you are among those still working, this is the time to reduce your credit card usage.
While it allows you to reduce your debt, it also enables you to develop sound money management characteristics which you'll need to achieve financial independence.
When companies start to trim the workforce, workers that are first shown the exit door are often those deemed to have low value.
The last to go are those which the company places a high value upon. Given the wave of layouts, this may be a good time to upskill and increase your worth. The benefit of this is that even when you get laid off, you have a higher chance of getting another job, and an even better-paying one.
So, it's never a bad thing to improve and equip ourselves with new skills.
Many people use their jobs to save money for their retirement.
If the firm where you were laid off offered a 401(k), you'll need to decide what to do with that account.
The majority of employers let you keep your plan with them even after you quit. If you have less than $5,000 in the account, however, the funds might be transferred to your retirement account.
However, you won't be allowed to keep making contributions to a plan at a business you've left. Additionally, the amount you can borrow from the account or withdraw from it might be restricted.
The pandemic forced many companies to overshoot their estimate and go on a hiring spree.
With the economy slowing down, many companies have been forced to revise their hiring plans and lay off workers. While this is an unfortunate event, it also provides a learning curve on how you can prepare for uncertain times.
Having a plan in place may not exclude you from the eventual fallout, but it will soften the blow on yourself and your finances in the long term. By applying some of the tips outlined above, you put yourself in a better position to navigate the travails of being unemployed.
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