Expert Opinion: How To Prepare Your Finances for a Potential Layoff

Source: Color Joy Stock
Source: Color Joy Stock

It seems like every time I turn on the TV or pick up my phone lately, there’s news of another layoff. This tech company laid off a percentage of its workforce, or that company let hundreds of people go. As an employee who enjoys the stability of a full-time job, it’s a scary work environment to be a part of, filled with a lot of uncertainty. It often causes me to pose the question, what if it happens to me?

I’d imagine someone’s initial thought when learning about a layoff, after the panic, of course, is, “what do I do next?.” Then, I’d bet that quickly following that question is the thought, ‘how am I going to afford this?” Living with a big fat question mark in front of your career is daunting and, unfortunately, mostly out of our control. But the one thing we can control if we fear a potential layoff is our finances. 

That’s where expert Courtney Alev comes in. Courtney Alev is an Associate Director of Product Management at Credit Karma, in addition to serving as Credit Karma’s Consumer Financial Advocate. In her role, Courtney is responsible for building Credit Karma’s next generation of product features focused on helping members know, grow, and protect their wealth. Prior to joining Credit Karma, Courtney worked at Intuit-owned Mint and Nerdwallet, so she knows a thing or two about how to manage finances. 

I asked Courtney how we can get our money right, so our finances are in the best possible situation should we find ourselves staring a potential layoff in the face. Here are three things we can all do today.



How To Financially Prepare for a Potential Layoff

Understand Your Current Financial Situation

The first step to getting your finances in order is to understand what you’re working with, the good, the bad, and the ugly. “Know where you stand with your finances so you can make a plan. Look at everything; your credit card bills, your rent or mortgage payment schedule, your car payment, daycare fees, utility bills, you name it,” said Courtney. “Ideally, you’re getting a bird’s-eye view of your finances so you can see what you need to spend on in the short term.”

This is a great exercise to complete at any point in your career to get a clear picture of your financial situation, but it’s especially important if you suspect a layoff may be in your future. To determine what you’re going to do, you need to know where you’re starting from.


Reevaluate Your Budget

Once you understand your current money situation, it’s time to reevaluate your budget while you still have a steady stream of income. Ideally, you already have a budget in place you can reference, but if not, now is the time to start one. When you’re faced with financial uncertainty, every penny counts, so you need to get clear on your financial priorities, spending habits, and areas where you can save now. “Revisit your budget, which will likely need some temporary changes,” Courtney recommends. “Get creative with ways to cut costs and prioritize necessities.”

Now is the time to cut out any unnecessary costs and forgo nice-to-have items (i.e., streaming subscriptions, new clothes, manicures) in order to purchase need-to-have items down the road (i.e., food, gas, utilities). Remember, this tightening of your financial belt is only temporary. Your future self will thank you for a little sacrifice now while you have money coming in if you find yourself without your main source of income in the coming months.

If you’ve already been laid off, you’ve evaluated your budget, and you’re still coming up short on cash, now’s the time to utilize your emergency fund. “If necessary, you can always tap into an existing emergency fund until you can get back on track financially – that’s what it’s there for,” said Courtney.


Establish an Emergency Fund

Speaking of emergency funds, the best time to start an emergency fund was yesterday. The second best time to start one is now. At this point, you’ve evaluated your budget and cut unnecessary costs, so it’s time to take any extra money and put it in an emergency fund while you’re still employed. If you can put that money in a high-yield savings account (HYSA) to help accrue more interest than your average savings account, even better. The common rule of thumb for emergency funds is to save three to six months of expenses to help provide relief in exact circumstances like a layoff.

If you’re freaking out because your savings account is a big old goose egg, I hope you find comfort in knowing you’re not alone. “Emergency funds are unfortunately not as common as you’d hope,” Courtney shares. “A recent Credit Karma survey found that 41% of Americans don’t have an emergency fund and more than one in five have no savings at all (22%).”

Even if you’re starting at zero, starting to save now before you need to utilize an emergency fund will ensure you at least have a few dollars tucked away. If you do find yourself without cash on hand to pay for necessary expenses like rent or utilities during a layoff, don’t fret. “If you don’t have any savings you can tap into, or an emergency fund, reach out to your credit card company to see if they’re able to offer any temporary relief as you get back on your feet,” Courtney recommends.


What to Do If You’ve Already Been Laid Off

So what if you did everything you could to best position yourself financially and still find yourself in the unfortunate situation of getting laid off and in need of financial relief? While it’s a stressful situation, there are options to help relieve the monetary strain of a layoff. “Unemployment compensation benefits are available to anyone who has lost their job through no fault of their own and are meant to help you make ends meet until you find a new job,” Courtney said. “So, if you were laid off, you will typically be eligible for unemployment benefits. The process varies for each state, but there are many resources available online to help you understand what you may qualify for and how to apply for it.” This website is a good place to start to identify the unemployment benefits available to you.

In addition to financial relief provided by unemployment benefits, you have other options to help you get back on your feet after a layoff. Courtney suggests seeing if there’s any temporary work you can take on as you look for your next job. This will ensure you still have some source of income while you’re looking for something more permanent. She also shares, “If your goal is to find your next job so that you have a steady source of income again, tap into your network. A good network can help you see who’s hiring right now and which roles need to be filled so you can start sooner.”

Job uncertainty is scary, and unfortunately, it’s a real risk for many of us. The possibility of losing your job and your livelihood is enough to frighten even the strongest of people. “Being laid off can be overwhelming and emotional, and to be told that you quickly need to review how much money you have, or don’t have, can add to the stress,” said Courtney. But while facing our finances can feel difficult, it’s going to be even more challenging if you don’t and you find yourself without a job. “However, the worst thing you can do if your main source of income dries up is bury your head in the sand. Once the bills and interest payments start piling up, it may be harder to dig out of that financial hole,” Courtney shares.

Taking the time now, while you’re still employed, to prepare your finances is the greatest gift you can give your future self. Nothing pays dividends quite like the peace of mind of knowing you’re equipped to weather any financial storm.