There is an old saying that “Luck is what happens when preparation meets opportunity,” and it perfectly captures the essence of what it means to be ready, especially when it comes to our finances. We all know that preparing for anything takes time, patience, strategy, and most importantly, a lot of critical thinking. But when it comes to finances, there is nothing more stressful than not knowing where your next paycheck will come from. Preparedness is a continuous cycle of planning, practicing, and consistency.
The world we live in constantly evolves, and with that evolution comes economic concerns. While it is one of those topics that no one wants to talk about, this is an important one. Being proactive is one of the best ways to protect your peace of mind and get you ready, no matter what your company decides to do. To prepare for potential job loss, you can focus on strengthening your financial situation, building a strong professional network, and maintaining a positive mindset. Below are a couple of suggestions on preparation should you find yourself in this situation.
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Build a Cash Cushion
While many experts recommend having three to six months’ worth of expenses in a savings account, the perfect amount of money to save is not the same for everyone, as everyone has a different financial situation. Start small, for example: “I will save $1000 in 3 months.” After reaching that goal, give yourself a bigger one and double it. The idea here is to meet your small goals and gradually keep aiming for more. Keep this mindset, and your cash cushion will be what you want it to be.
Review and Reduce Your Expenses
The keyword in this section is monitor. When it comes to your finances, it’s important to monitor your spending habits, create a budget, and plan for some bumps along the way. A helpful way to do this is by dividing your income into spending categories and making a plan to consistently monitor your bank account.
When reviewing your spending habits, take a closer look at the 50/30/20 method to manage your money effectively before a potential layoff:
50 % of income: Aim to spend about fifty percent of your income on basic living expenses like housing, transportation, utilities, food, and other essentials. Write down your expenses and review your bills for each month, eliminate things that are recurring expenses, like subscriptions, and other non-essential expenses like streaming memberships that you don’t use or need.
30% of your income: Consider setting aside around 30% of your income for dining out, entertainment, and non-essential purchases that are included in the discretionary spending category of your finances. Keep in mind, this may be a category that can be difficult to manage, because it is easy to spend money when you think you have extra. If you have extra, it does not mean that you can spend more, especially on unnecessary luxuries. If you’re preparing for a potential layoff, try to work on cutting back where you can.
10 – 20% of your income: One of the most important categories is your emergency fund, which should get around ten to twenty percent of your income each month, if possible. This is to prepare for uncertainties, accidents, and medical issues that can happen to any of us at any time. As mentioned above, having up to 6 months of living expenses is recommended. Try to automate your savings as much as possible by preauthorizing a portion of each paycheck to go into your savings account.
In addition to budgeting, it is very important to minimize other expenses like debt payments. Defaulting on debt is something that you never want to deal with, so be sure to pay off debt before you end up in a bind, and if you’re in a financial rough patch, be sure to budget for your minimum payments on things like your credit card, personal loan or automotive loan so that you don’t fall behind.
Start Diversifying Your Income
Make money from sources like skills, hobbies, and other things you are good at! One Etsy shop could easily earn you a few hundred dollars or so a month, especially if you hit a niche market like crochet or woodworking.
In addition to getting a secondary source of income, finding sources of passive income can help you earn extra money when things are going well and can also support you if you lose your job or need to take time off work. Investments are a great source of passive income, but keep in mind that some investments can be a lot more volatile than others.
Understanding Your Benefits and Severance Rights
Make the most of your employee benefits while you have them! These may include things like 401(k) matching contributions, health and life insurance, and Health Savings Accounts (HSAs), if available.
Should you face a layoff, meet with HR about severance packages, which may offer temporary pay, continued health coverage, and job-search assistance after the off-boarding process begins. Benefits vary by employer, so it’s also a good idea to ask about COBRA. This program allows you to keep your health insurance for up to 18 months, or until you get a new job. Keep in mind, COBRA may come with costs, so try to set aside money just in case.
Update Your Resume and LinkedIn Profile, and Start Networking
A polished and updated resume is a great way to be prepared for the unexpected event of a job loss. You can start by determining your experience in chronological order, adding keywords to make your resume stand out, and proofreading it ahead of time.
Consider taking relevant courses, workshops, or online programs to gain the necessary knowledge and expertise for your desired career path. LinkedIn is a great resource to start networking and getting your resume out in the open to find a new position.
Create a Job Loss Game Plan
This does not need to be a game plan that requires hours of critical thinking and multiple blueprints. The simpler it is, the better. Use your resources, like online financial websites and budgeting apps, to get your finances back on track if something happens. Highlight things that are important to you, and include short and long-term goals. Remember to stay flexible with your financial plan during a career change, adjust and review your financial plan often, and keep an eye on your budget so that tracking your spending is easy. Your game plan should make sense to you, not anyone else.
Learn How Interviewing Practices Have Changed
In 2025, the hiring process will not be the same as it was ten years ago. Video interviews have become the new norm and are thought to be more efficient and cost-effective than the traditional route of visiting an office. Companies are looking for candidates who demonstrate a growth mindset, leadership potential, and a willingness to learn.
In many cases, your resume is not even seen by the hiring manager! AI and HR will filter your resume unless it has certain keywords. Before you submit a job application, do a little bit of research to find the right keywords and tailor your resume to fit the bill, so to speak.
Remember to Prioritize Your Finances
The importance of financial planning during a career change or potential job layoff is essential. If you are sensing instability in your career, take a moment to reflect on all the positives your current employment has gifted you. You can start by engaging in activities that promote relaxation and focus, such as deep breathing. It is also wise to think about how many skills you have learned, how much professional growth you have experienced, and that you will be able to start fresh somewhere new, which will get you on the right path to face uncertainty with greater financial security and peace of mind.
