Business Insider defines a recession as a period of contraction in a country's economy, signaled by a reduction in Gross Domestic Product (GDP) and rising unemployment, among other factors.
But I like a definition I once heard better: A recession is your neighbors being laid off, and a depression is you being laid off.
You can’t read the news without seeing multiple headlines that a recession may be coming. According to Crunchbase, more than 77,000 tech workers were laid off in 2023, and 140,000 total US workers were laid off in 2022. Some people may find themselves worried about being next. This article will address how you might prepare yourself for a layoff.
Cash is King – Build up your Cash Reserves
This old saying is true if you think you might be in line for a layoff. As Financial Advisors, we like to see people have 3-6 months of emergency funds regardless, but if you are worried about a layoff, you might add some more cushion to your emergency fund. This is not the time to pay off debt. If you spend all your cash eliminating debt and then get laid off, you won’t have funds to pay rent, make the mortgage payment or buy groceries. You will need your emergency fund for that.
Many online banks are offering interest rates currently above 3%. You can stash your savings there and have your money earning money for you. Examples of FDIC-insured online banks include Ally, CapitalOne360, and Marcus.
Reexamine Your Expenses
Review your budget. If you don’t have one, now is the time to make one and stick to it. Start eliminating extra spending and stash the savings into cash. Do you need all the streaming subscriptions, or can you alternate them? Do you use that gym membership? Can you brown bag your lunch? Don’t take on new expenses. Postpone the new car if possible. Evaluate your housing expense if your lease is coming up.
Review your State’s Unemployment Benefits
Each state has different unemployment benefits. Review how much weekly pay you may qualify for and find out how long it may last. What are the rules if you are offered a severance package? Remember that unemployment payments are taxable, so plan for that and not get an unexpected tax bill next April.
Consider What You Will Do for Health Insurance
When you lose your job, you typically have health insurance until the end of that month. Once that month is over, you will need to find other insurance. You will be entitled to 18 months of COBRA insurance. COBRA allows you to continue with your employer coverage, but you will pay the full amount, which can get expensive. You can start COBRA up to 60 days after being laid off.
If you find COBRA too pricey, consider going on your state’s Affordable Care Act insurance. For example, if you live in Minnesota, you could get into the MNSure insurance through a qualifying event. (Such as losing your employer insurance).
If you are single or your spouse doesn’t work, and now there is no income, you may qualify for Medical Assistance. It will depend on your state, but if it has expanded Medicaid, you may qualify if your income is up to 138% of the poverty level. Medical Assistance may be your least expensive option.
Networking and staying in touch with people in your industry is always a good idea. Now would be the time to reconnect and build relationships to stay apprised of job openings in your field.
Dust off Your Resume
It may have been a while since you’ve looked for a job. If so, now is a good time to review or create your resume. Review your current job duties, responsibilities, accomplishments, and key skills. Resumes have changed, so learn how to create a resume for modern times. Some companies use Applicant Tracking Systems, so learn how to create a resume that will work with that tool as well.
Losing a job can be stressful, but being prepared can make it less so. Understanding how you will pay bills, learning your rights in your state, proactively polishing your resume, and building your network will better help you meet the challenge.