By Danielle Arlotta, CFP®
This year started with significant layoffs for federal workers, and we’ve seen the ripple effect extend to both public and private sector jobs. These developments have made it more important than ever to be proactive in managing our finances. While we can’t always predict the future, there are steps we can take now to better prepare ourselves for potential financial challenges.
Here are some key steps you can take to prepare for economic uncertainty:
1. Calculate Your Emergency Fund
It’s essential to have a solid emergency fund in place. We recommend setting aside at least three months of living expenses. If you’re concerned about job security or foresee potential increases in your expenses, it might be wise to aim for closer to six months of expenses. The more cushion you have, the more flexibility and peace of mind you’ll gain during uncertain times.
2. Reduce Your Spending
Now is a great time to review your spending habits. Take a close look at your recent expenses—both fixed (such as rent or mortgage) and variable (such as entertainment or dining out). Consider making any adjustments that you can now. By doing so, you’ll be better positioned for financial setbacks.
3. Create a Debt Repayment Plan
If you have consumer debt (e.g., credit cards, personal loans), now is the time to develop a strategy to pay it down. Carrying large amounts of debt through a period of unemployment or reduced income can significantly tighten your finances. Prioritize paying down your debt, especially those with the highest interest rates, to make your financial situation more manageable if times get tough.
What to Do If You Lose Your Job
If you do find yourself without a job, there are immediate steps to take. Applying for unemployment benefits should be one of your first actions, as it can help replace some of your lost income.
Additionally, if you’re offered severance pay, it’s important to understand how it impacts your ability to collect unemployment benefits. Severance is considered income, which may delay when you can begin receiving unemployment payments. Before accepting a severance package, consider negotiating for additional benefits, such as extended health insurance coverage. This could give you more time to find a new job while maintaining essential coverage.