While the U.S. unemployment rate remains near historic lows, there are signs that the labor market may not be as strong as these numbers suggest. From Snap to Best Buy and Goldman Sachs, a series of high-profile layoffs have been announced in recent weeks across a wide range of industries.
A recent PwC survey showed that a full half of company executives said they plan to lay off employees this year.
Whether you’re worried about receiving a layoff notice or not, making some defensive money moves now can help protect your finances in the event of a job loss, so you can focus on finding your next job without worrying about paying the bills.
“It’s better to be proactive than reactive,” says Connor Spiro, senior financial advisor at John Hancock. “Think of it as a stress test for the worst-case scenario. How can you best get yourself to plan for it?”
The first step is to look at your budget now and cut discretionary spending, such as vacations or dining out. After freeing up some extra cash, perform the following steps.
Build your emergency fund.
Reduce your debt payments.
Consider a side hustle.
Reconnect your network.
Develop a health insurance plan.
Build your emergency fund
The traditional advice is to keep three to six months’ worth of expenses in a liquid account for emergencies. If you’re worried about layoffs, increasing this account to six months to a year’s worth of expenses will give you an extra cushion while you look for a new job.
[ READ: Be Ready for the Unexpected With an Emergency Fund.]
Reduce your debt payments
If you have high-interest credit card debt, it’s only going to get more expensive as interest rates rise. Focus on paying it off or transferring or consolidating it into a lower interest rate loan.
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Isabel Barrow, director of financial planning at Edelman Financial Engines, says, “What you don’t want to do is lose your job or reduce (compensation) because of a huge credit card bill you can’t afford to pay.”
Consider a side hustle
In addition to freeing up money by cutting expenses, you can increase your income through a side hustle. This could be freelance or consulting work in your field (if your employer allows you to do so), a hobby that earns you extra cash or odd jobs, such as driving a carpool or using a food delivery app.
[ Read: A guide to starting a side hustle. ]
Reconnect your network
If you stopped attending industry events during the pandemic, now may be the time to start showing up again. If you need to re-establish those relationships, it may also be wise to connect with former colleagues or classmates from other companies now. In addition to helping secure job opportunities, your network can give you insight into your industry, including salary levels and the requirements of positions you may be interested in.
“Make sure your skills and your LinkedIn profile are up to date,” says Shawn Tydlaska, a fee-only certified financial planner and founder of Ballast Point Financial Planning in San Francisco. “That way, if you do get fired, you’re employable.”
[ Read: How to Write a Resume. ]
Develop a health insurance plan
If you are laid off, your employer will no longer contribute to your health insurance. It’s important to maintain coverage, and you can do this through the Consolidated Omnibus Budget Reconciliation Act (COBRA), which allows you to continue paying for health insurance coverage you’ve earned through your job. Losing your job is also a qualifying event, which allows you to obtain coverage through your spouse’s employer or the public market without waiting for open enrollment.
