How to prepare financially if you fear a layoff

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If your company recently suffered layoffs and you’re worried you’ll be next, you’re probably starting to wonder what you should do with your finances. As you navigate this stressful and unpredictable time, you may be wondering how long you can live off your savings or what you should be doing about your monthly student loan payments.

These are all valid concerns, and while you may not be able to fully prepare for an impending layoff – especially if it’s expected to happen soon – now is a good time to take a closer look at your expenses, income and debts so you can be as prepared as possible for whatever comes next.

Select spoke with Blair duQuesnay, CFA®, CFP® and Investment Advisor at Ritholtz Wealth Managementabout what people can do to prepare themselves financially in case they are laid off.

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Determine how much savings you’ll need

The general consensus is that people should have saved three to six months of living expenses for a emergency fund. This means having enough money to cover essential expenses such as rent, transportation, food, and health care.

duQuesnay recommends people who work in fields more likely to be laid off consider saving more than six months of expenses.

This, however, may not be a feasible option for many American families. According to a Consumer Financial Protection Bureau 2022 Reportalmost 40% of consumers had saved less than a month of expenses, while 24% had no emergency funds.

If for some reason you’re unable to cover three to six months of expenses, don’t worry, because you might not need to save that much after all.

A JPMorgan Chase & Co. Institute 2019 Report Focusing on income volatility found that families would need six weeks of spending to cope with a simultaneous increase in expenses and a decrease in income. For a slight drop in income, three weeks of expenses were needed to support the families.

Additional research conducted by the Social Science Research Network, or SSRN, which was specifically focused on low-income families, came to a similar conclusion: A family of four earning less than $30,000 should have about $2,467 or about a month of expenses saved.

If saving several months of expenses is an unattainable goal, setting a smaller goal of saving a few weeks of expenses might be enough to get you through it. Start saving by setting aside money from each paycheck after you receive it (try automating deposits to a savings account if you can), which will reduce your temptation to spend the money on other things.

You don’t necessarily need to save a substantial amount of money on every paycheck either – start small and increase your savings rate from time to time. For example, you can start by saving 5% of your salary and then increase this percentage over time.

For your emergency fund, consider saving with a high-yield savings account, which offers a significantly higher interest rate or annual percentage return than a traditional savings account, but is not not as volatile as an investment in the stock market.

Select ranked Marcus by Goldman Sachs High Yield Online Savings, Ally Bank Online Savings Account and Synchrony Bank High Yield Savings among the best high-yield savings accounts.

You should also check whether or not you qualify for severance pay which is the money employers pay to employees who have been made redundant. And if you are laid off, you should be eligible for unemployment benefits through your state and/or the federal government.

duQuesnay suggests that people also think critically about the allocation of their investment portfolio, explaining that if your employer offers stock options, you generally don’t want to invest too much money in those stocks because a layoff usually indicates that the company is not doing well.

Take a look at your current debt

If you have any type of debt — whether for student loans, credit cards, a car or a mortgage — you’ll want to find a plan to make your payments once you’re unemployed.

duQuesnay points out that people should try to make the minimum monthly payment on all of their debt. If necessary, you can even contact your lender and ask for a forbearance period, a certain amount of time when a lender allows someone to stop or reduce their payments.

Currently, there is a forbearance period on all federal student loans, which is expected to last until August 31, 2022. During this period, no interest will accrue on federal student loan balances and borrowers will not have to make payments.

Credit cardholders may also be able to request a lower APR or monthly minimum payment from their card issuer. While it’s worth making a phone call to see if there’s wiggle room, credit card issuers are less likely to approve these types of requests than they would for, say, a slightly higher credit limit. Be aware that asking for a lower APR can also lead to high credit pressure, which can lead to a temporary reduction in your credit score.

If you have a credit card balance and are laid off, consider opening a card with a 0% APR introductory period and transferring your balance. This way you can pay your bill over time and not accrue additional interest. You can also use a 0% APR card to fund essential purchases while you look for a new job, and you won’t have to worry about interest accumulating during the introductory period. Consider one of the best 0% APR credit cards that can help finance debt or new purchases interest-free for up to 21 months.

Wells Fargo Reflect℠ Card

On the Wells Fargo secure site

  • Awards

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% intro APR for 18 months from account opening on eligible purchases and balance transfers. Intro Extension APR for up to 3 months with on-time minimum payments during the introductory and extension periods. 14.49% to 26.49% variable APR thereafter; balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    14.49% to 26.49% variable APR on purchases and balance transfers

  • Balance Transfer Fee

    3% introductory fee ($5 minimum) for 120 days from account opening, then up to 5% ($5 minimum)

  • Foreign transaction fees

  • Credit needed

Citi Simplicity® Card

  • Awards

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

  • Balance Transfer Fee

    5% of each balance transfer; $5 minimum

  • Foreign transaction fees

  • Credit needed

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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