A couple of weeks ago, I was on LinkedIn and read a post about how a guy was laid off after more than a decade of work at the same company. They didn’t even have the decency of an in-person meeting. He found out through the news that they were laying employees off! Suddenly, his email was deactivated, and his pass didn’t work. That’s why safeguarding your finances during layoffs and market volatility is so important!
Tech Bubbles
That’s why I decided to write this article. Those in the tech industry often feel that they are on an unending upward trajectory. While there may be some truth to this in the long run, the IT sphere regularly grows through bubbles and bursts (2002, anyone?), causing employees and investors to crash back down to reality. Some, unfortunately, never recover financially.
But I don’t want that to happen to you! With these simple steps, you can soften the blow of a layoff or a reduction in income. The more margin of error you give yourself, the less stressed you will be when a bubble eventually bursts.
Build an Emergency Fund
The importance of an emergency fund cannot be overstated. This safety net can be a lifeline during challenging times, such as job loss or reduced income.
Aim to save at least three to six months’ worth of living expenses. If you’re young and single without any kids and can couch surf for a while, you probably won’t need as much. If you are married with a few kids or other dependents, you may need six months’ salary or more. The more you have saved up, the more freedom you will have to hold out for a better job or find a cheaper living solution.
Now, just because you have a sizeable emergency fund built up doesn’t mean you can’t put that money to work for you.
You can split your fund into three parts:
- One month of living expenses in cold, hard cash.
- Two months of living expenses in a money market account.
- Three months of living expenses in a CD ladder.
When a CD matures, you can either purchase another CD or drip funds down into the money market account. When you need more money in your month’s worth of savings, you can drip money down from the money markets account.
This way, you always have your money working for you with varying degrees of liquidity and APY rates.
Reduce Expenses and Boost Savings
During periods of downsizing, it’s crucial to be mindful of your spending and focus on increasing your savings. If you don’t have a budget strategy in place already, you should consider a 50/30/20 budget. This strategy involves 50% of your budget going to essentials, 30% to entertainment/hobbies, etc., and 20% to paying down debt and savings.
When you feel hard times are coming, you can adjust those numbers as necessary. For example, proactively moving to a cheaper place and reducing entertainment costs, and plugging the extra funds into your savings account. Now, you may have a budget of 40/10/50, giving you a greater margin in case you get laid off.
Review Your Health Insurance and Benefits
Losing your job often means losing access to employer-sponsored health insurance and other benefits. Familiarize yourself with your current health insurance plan and what it covers, and then shop around for possible and affordable alternatives to cover you and your family until you find another job.
Cobra Insurance
Be sure to look into COBRA coverage, which allows you to continue your employer-sponsored health insurance for a limited period after job loss. Unfortunately, you will have to pay not only the premium you paid at your job but also whatever your employer put in, plus a 2% administrative fee. Still, it may be cheaper than insurance on the open market because your company insurance was probably discounted.
You qualify for cobra if:
- You were in an employer-sponsored medical, dental, or vision insurance plan.
- Your previous company had more than 20+ full-time workers.
Look into your contract or talk with HR about any benefits owed to you in case you are made redundant, such as unemployment insurance or severance packages. It doesn’t hurt to try to negotiate a severance package. Typically, you’ll have 21 days to sign an agreement, so utilize that time to thoroughly examine all the clauses. Familiarize yourself with the industry norms, the company’s standard practices, and the usual provisions for employees at your management level or with a similar number of years of experience. After all, it doesn’t hurt to try, and if you never ask, the answer is always no!
Reevaluate Your Investment Strategy
In periods of downsizing, it is vital to reassess your investment strategy and ensure it aligns with your current goals and risk tolerance, as they have probably changed. You may want to start focusing on the immediate or mid-term future rather than the long haul for a while, plus you need to focus on safeguarding what you already have. Perhaps moving new funds into less volatile investments like bonds should be looked into, or other investments that are safe and reliable, though not as growth-oriented.
Compound Gains
Regardless, try as hard as possible to leave current investments where they are. If you pull funds from dividend-producing investments such as ETFs or Mutual Funds, you’re taking away their ability to produce compound gains. If you’re in the tech industry, you’re certainly aware of the magical effects of compounding. Let it do its job! Your future self will thank you for your stay-the-course strategy.
In the meantime, consult with a financial advisor to determine the next best course of action to mitigate risk and stabilize your financial situation until the crisis has passed.
Update Your Resume
Lastly, it’s essential to be prepared for the possibility of job loss by keeping your resume up-to-date and maintaining your professional network. Especially if you have been working for years at one company, your resume may lack key experiences and projects, and the longer you wait, the more difficult it may be to remember the details.
Also, a clever LinkedIn post looking for a job after a layoff can lead to going viral, flooding your inbox with job offers or offers of help – especially if the layoff was committed through less than scrupulous methods. But before that, make sure and update your LinkedIn profile with relevant accomplishments and upgrades to your skills.
Network
Lastly, in your free time, start checking out industry events and start networking in person. People remember faces and a firm handshake more than a LinkedIn connection request. Keep some business cards handy as well. Who knows, you may find a better job without going through the stress of a layoff!
Paying the lower long-term capital gains tax is possible if you hold onto your shares for more than a year. But as I’ve already mentioned, you’re putting yourself at significant risk by holding to so many shares.
Conclusion
By being proactive in your financial and professional life, you’ll be a step ahead of others if the worst occurs. Plus, you’ll be better able to take care of your family until you find another job.
Remember that preparation and planning are key to weathering the storm and reaching out to a financial advisor can provide invaluable guidance and support. I’m always here to help you set up a financial plan that can weather the storm of market volatility.
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