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How to financially prepare if you're worried about a job layoff

Having an emergency fund and debt-paydown plan are important if you think your job may be at risk.

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RUNSTUDIO

If your company has been going through rounds of layoffs lately and you fear you might be next, you're probably starting to wonder what you should do with your finances. As you navigate these stressful and unpredictable times, you may be asking yourself how long you'll be able to live off your savings or what you should do about your monthly student loan payments.

These are all valid concerns, and while you might not be able to fully prepare for an impending job layoff — especially if it's expected to happen soon — now is a good time to take a closer look at your expenses, income and debt 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 Management, about what people can to do to prepare financially in case they were to be laid off.

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Figure out how much savings you'll need

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

duQuesnay recommends that people who work in fields more susceptible to job layoffs consider saving more than six months' worth of expenses.

That, however, may not be a feasible option for many American families. According to a 2022 report by the Consumer Financial Protection Bureau, nearly 40% of consumers had less than one month's worth of expenses saved up, while another 24% had no emergency fund at all.

If, for whatever reason, you aren't able to cover three to six months' worth of expenses, don't worry, as you may not need to save up that much after all.

A 2019 report by the JPMorgan Chase & Co. Institute centered around income volatility found that families would need six weeks' worth of expenses to handle a simultaneous uptick in expenses and decrease in income. For just a minor income dip, three weeks' worth of expenses were needed to sustain families.

Additional research conducted by the Social Science Research Network, or SSRN, that was specifically focused on low-income families yielded a similar conclusion: A family of four making less than $30,000 should have roughly $2,467 or around one month of expenses saved up. 

If saving many months' worth of expenses is an unattainable goal, setting a smaller target of saving up a few weeks' worth of expenses could be enough to get you by. Start saving by setting aside money from each paycheck after you receive it (try to automate deposits into 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 from each paycheck, either — start small and increase your savings rate every so often. For example, you could start by saving 5% of your paycheck, then increasing that 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 yield than a traditional savings account but isn't as volatile as investing in the stock market would be.

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 look into whether or not you're eligible for a severance package which is money that employers provide to employees who have been laid off. And if you're 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 their investment portfolio allocation, explaining that if your employer offers stock options, you generally don't want to have too much money invested in that stock, as a layoff typically indicates the company may not be faring well.

Take a look at your current debt

If you have any type of debt — whether it's for student loans, credit cards, an automobile or a mortgage — you'll want to figure out a plan for making payments once you're unemployed.

duQuesnay stresses that people should try to make the minimum monthly payment on all of their debt. If necessary, you can even reach out to your lender and request a period of forbearance, a certain amount of time when a lender allows an individual to either halt or reduce their payments.

Currently, there is a forbearance period on all federal student loans, which is expected to last through Aug. 31, 2022. During this period, no interest will be accruing on federal student loan balances and borrowers do 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 placing a phone call to see if there's any wiggle room, credit card issuers are less likely to approve these kinds of requests than they would for, say, a slightly larger credit limit. Be aware that asking for a lower APR could also incur a hard credit pull, which may result in a temporary reduction of 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 off your bill over time and not accrue additional interest. You could also use a 0% APR card to finance essential purchases while you look for a new job, and you won't have to worry about interest piling up in the introductory period. Consider one of the best 0% APR credit cards which can help finance debt or new purchases interest-free for 21 months.

Wells Fargo Reflect® Card

On Wells Fargo's secure site
  • Rewards

    None

  • Welcome bonus

    None

  • Annual fee

    $0

  • Intro APR

    0% intro APR for 21 months from account opening on purchases and qualifying balance transfers.

  • Regular APR

    18.24%, 24.74%, or 29.99% Variable APR on purchases and balance transfers

  • Balance transfer fee

    5%, min: $5

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

See rates and fees. Terms apply.

Citi Simplicity® Card

On Citi's Secure Site
  • Rewards

    None

  • Welcome bonus

    None

  • Annual fee

    $0

  • Intro APR

    0% Intro APR for 21 months on balance transfers from date of first transfer and 0% Intro APR for 12 months on purchases from date of account opening.

  • Regular APR

    19.24% - 29.99% variable

  • Balance transfer fee

    There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, a balance transfer fee of 5% of each transfer ($5 minimum) applies.

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

  • Terms apply.

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Information about the Synchrony Bank High Yield Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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