Trouble is a-brewing at your company, and there are signs that your job might be slashed.
Maybe there have been layoffs already. Maybe you sense your boss isn’t pleased with your performance. Whatever it is, you’ve got to start hunkering down and prepare for several months — or more — without a paycheck. “You want to triage this thing and not put yourself in too bad of a position,” says Ed Vargo, certified financial planner, founder and private wealth manager at Burning River Advisory Group in Cleveland.
[See: 8 Big Budgeting Blunders — and How to Fix Them.]
Here’s how to prepare your finances for a potential layoff.
Slash spending. Don’t wait until you’re handed a pink slip to start cutting back on spending. “If you see the writing on the wall, then that’s when you should immediately act like it’s happened,” says Melissa Sotudeh, a wealth advisor at Halpern Financial in Rockville, Maryland.
Examine your budget for categories where you can cut back. You might choose to tamp down on restaurant meals and future vacations. You may be able to extend your auto loan to lower your monthly payments. You might renegotiate your cable — or better yet — cut it entirely.
Once you’ve cut your spending, funnel the extra cash into a savings account. The key is to keep it liquid, so that you can live off of it when your paycheck ceases, experts say.
“If you can reduce those guaranteed fixed expenses, it can make your life so much more manageable,” Vargo says.
Reduce savings. It may make sense to scale back on contributions to certain long-term savings accounts in order to carve out room in your tightening budget. “If you don’t have an emergency fund, it’s a good idea to halt contributions to your 401(k),” says Zach Abrams, a certified financial planner and manager of wealth management at Capital Advisors Ltd., in Shaker Heights, Ohio.
If you do have an emergency fund, you may still want to scale back on savings, without cutting them entirely. When it comes to your employer-sponsored retirement account, “contribute up to the match,” Vargo says. “Get the free money.”
[See: How to Live on $13,000 a Year.]
Other classes of savings, for example, contributions to a child’s 529 college savings account, may be better off suspended completely during your period of unemployment. Your future student will be able to tap student loans, scholarships and grants for his or her education, but “there are no student loans for retirement,” Vargo says.
Navigate health insurance. If you’ll lose your employer-sponsored health insurance along with your paycheck, start considering your options for nabbing medical coverage elsewhere.
You’ll likely keep your employer’s coverage through the end of your last month. After that, you may choose to extend it through the federal program COBRA.
“It’s also a good idea to start looking at how much insurance would be off the [health care] exchange … because that’s a huge expense,” Sotudeh says.
[See: 12 Habits of Phenomenally Frugal Families.]
Or your spouse may be able to add you to his or her insurance plan. If you’re married, “you do want to know: Can the other party pick up health care?” Vargo says.
No matter which route you choose to continue your insurance, it’s a good idea to fit in some checkups and other health care appointments while you’re still on your employer’s medical plan.
Tap credit. If accessing credit, such as your home equity, is a strategy you want to try, submit your applications while you still have a paycheck.
“They’re going to want to see that you’re employed,” Sotudeh says.
One option, a home equity line of credit, can be a reliable backup source of extra cash. “Get the home equity line of credit now,” Vargo says. “That’s a really cheap loan.”
Another option is to tap credit cards with zero percent introductory rates. But only access this credit as a last resort. “The more debt you take, the more risk you take,” Abrams says.
Get to work. It’s typically easier to start your job search — and land a new gig — while you’re still employed.
Start applying for new jobs and making introductions to potential networking contacts.
And consider what extra work you start doing to increase your revenue streams — even before you’re laid off. “Is there any other way you can generate a source of revenue?” Abrams asks. “Even incrementally by a few months? Drive an Uber?”
More from U.S. News
Your Month-to-Month Guide to Savings
Prepare Your Finances for a Layoff originally appeared on usnews.com
