As the government raises interest rates to avoid runaway inflation, this will result in a slowing of the economy. Along with this, businesses may find a need to lay off employees. Employee payroll is often the largest expense a business has, so this is where cuts are taken.
If you find yourself to be one of those let go, here are a few tips to manage money during this period of time.
Use Savings and Investments For Between Job Expenses
Daily money managers will repeat the mantra that everyone should have an emergency savings fund that contains enough money to live on for six months to a year. The point is to have an amount set aside so that there isn’t an immediate stress of wondering how to pay bills next month.
However, if an emergency fund is not enough for expenses or does not exist, then it may be necessary to tap into investments. This is not ideal because it may mean taking money by selling investments at the very time when investments may not be doing well (due to the slowdown in the economy). Thus, the money is not in investments when it should be invested and it isn’t there for helping with the future needs.
Another option, again not ideal, is to borrow from investments. That still means that the money is no longer in the account, but it does mean there is a fixed time period until that needs to be repaid. (Failing to repay on-time can cost even more money in the form of additional taxes.)
Ask For Help From Others
If there is no savings and no investments from which to draw, then it might be necessary to look to outside sources of funding. There are a number of organizations who help individuals make it through periods of no income. In the U.S., states have an Unemployment Compensation program that can provide some income while unemployed. It is important to sign up for this benefit right away because there is a lag between the time of application and when benefits start to be received. There may be requirements of the state program which could include documenting the job search and other regular reporting to remain eligible for benefits.
Let any debtors such as credit card companies and utilities know your situation right away. They may have options that can lower or defer payments for a period of time. However, if payments are deferred this may result in a longer time period to pay off the debt so keep that to a minimum if possible.
Don’t forget friends and family if things become dire. More people than will admit have used the supplemental nutrition program (formerly food stamps), and used the resources of non-profit assistance programs.
When hired again and working, consider paying it forward by contributing to those organizations that were used.
Making Paying Off Debt A Priority
This may seem counterintuitive. Why should I take money I need and pay off a debt with it rather than using it? The reason is that credit card debt may be charging 20%-30% interest on any outstanding amounts, which saps money that could be used elsewhere.
Let’s say that $1,000 invested is making 10% each year. However, a $1,000 debt is costing 25% a year. That investment is making money, but not enough to cover the debt interest. Therefore, it is worth taking the $1,000 and paying off the $1,000 debt to remove those interest expenses.
Make Sure The Investment Portfolio Is Diversified
Since the reason for a company laying off people is because the economy is not doing well, the investment market won’t be doing well either. It is important to have a well-diversified portfolio so that the major ups and downs in the market are not reflected exactly in investments.
This can be done by spreading out the investment into different types of investments that don’t behave the same way. For example, investments in companies that sell consumer goods that people have to buy (toilet paper, food) often do well when the market is down. However, companies that sell consumer goods that are not necessary often don’t do well when the market is down. By investing in both, one goes up when the other goes down, helping to keep investments from losing money overall.
For those, who manage investments or have someone else manage them, this can be a good time to review the portfolio and make changes as necessary.
Reduce Expenses Right Away
Right after a layoff is a time to put together a new monthly spending plan based on about three months of previous spending. This plan documents money spent for Needs as well as what is spent on Wants. Revise the plan going forward to only spend on needs and shrinks the wants to a minimum amount. (Everyone needs to spend just a little bit on wants to celebrate milestones toward the next job. Besides, it makes a good incentive to keep at the job hunt process.)
One future benefit is knowing exactly how much is needed to live on each month. By multiplying this amount by six, the amount needed in the emergency fund can be calculated. This can also help determine exactly how much income is needed to meet necessary requirements. After a new job is found, the extra income above that minimum amount can be reviewed to determine what to use, save, and invest.
During a period of looking for a job, consider interim sources of income to help manage the gap between income and expenses. This could be a part-time job or an immediate income side-gig. Be creative as this part-time may be more fulfilling and an opportunity to change careers.
Make Sure That Scammers Don’t Get Any Funds
Scammers are great salespeople and know exactly what buttons to push to get your money. Since this is a time when every dollar counts, it is important not to succumb to any scams. If the job opportunity seems too good to be true, there is probably a scammer behind it. If a business is asking you to front money for the job, or asking you to buy office supplies from a company check, or puts tight timelines on decisions, it is probably a scam. Scammers know that someone out-of-work may be more vulnerable to grasping at the next job opportunity, so it is important not to be duped.
Likewise, any offer or opportunity that involves paying in Bitcoin, pre-paid gift cards, or wiring money is a scam. Break off contact immediately with someone requesting that type of payment.
Last But Not Least, Focus On Mental Health
The period of losing a job, searching for something new, and landing a new job is one of major change. Change in itself is stressful. Searching for a job is stressful. Money management at this time is stressful. Combining all three at the same time means that taking some time to focus on yourself is critical. Remember to take breaks during the search. I gave myself Friday afternoons to do something fun instead of job hunting. Reach out to friends and family to maintain a social structure. Eating right, exercising, and get enough sleep will also keep your body and mind working well.
The important thing to remember is that while the layoff isn’t something that you chose, there is hope knowing that your skills will be desired elsewhere which may result in something even better than before. Sometimes this forced change can be a new opportunity.