“I am not afraid of storms, for I am learning how to sail my ship.”
– Louisa May Alcott
If you’re in a volatile industry like oil and gas, or frankly any industry, words like “layoff” and “downsizing” swirl around your psyche like the next big hurricane season—it’s not a matter of if, but when.
Even if your industry doesn’t suffer from crazy ups and downs, being laid off can still be terrifying. Last year over 418,000 people were laid off in the U.S.; lower than Great Recession Era figures, but try explaining that to one of those unlucky people who were let go. No matter which direction the economy goes, the last few years are a powerful reminder…
It pays to be prepared!
Before layoffs threaten to flood your livelihood, you need a ‘prep kit’ with plans and resources that are ready to go ahead of time, so when disaster strikes, you can weather the storm with peace of mind.
Here’s what you can do right now.
#1. Build Cash
Can you last six months without your income?
Set aside 3 to 6 months of expenses in cash. You may need to cut back on the fluff for a while…so you can grow your savings account faster while you still have a job.
If you’re looking for a place to keep your cash, a high-yield savings account at your bank seems like the obvious solution. But if you want to earn a little extra interest without risking too much in the market, opening up a money market account could be the way to go.
In this instance, it’s best to steer clear of CDs (Certificates of Deposit). These accounts need time to mature, and withdrawing before the maturity date means you have to pay a penalty. Keep your cash somewhere that is secure and easy to access, fast.
Whatever it takes, build the cash now before you need it later.
#2. Reduce Your Expenses
This helps build cash…but also prepares you for a potential loss of income.
One tip I gave to Business Insider was to find any recurring expenses that you might be able to cut, or high expenses that you might be able to reduce.
View the full article: 12 clever ways to save money every day, according to financial experts
While you’re at it, review your checking account and credit card statements for the last couple of months. Tally up your day-to-day expenses. Then?
Highlight what you could’ve done without…or done with fewer dollars.
Could you eat out less? Skip the movie theater? Cut back on alcohol? “Staycation” instead of travel? Pack your lunch?
I remember when I had just started my business decades ago. I was making no money. I had to live on a bare minimum. Back then, ordering any drink at all if I went out to eat was a luxury that did not happen that often. And I am just talking iced tea.
If you need to “live small” for a couple of months it won’t kill you.
Once you’ve identified ways to cut back, start living it. Once again, any of us can cut back if we know it’s for a fixed period of time.
#3. Pay off your 401(k) loan
A 401(k) loan could be dangerous.
Most 401(k) plans usually require one of two options if your employment ends, even in a layoff:
- Pay the loan off in full.
- Take the loan as income, which means potential income taxes and penalties.
It’s as if you pulled the money out of the plan before your retirement date. Don’t get caught in that trap!
However, if you find yourself being laid off with that 401(k) loan still unpaid, don’t worry just yet. Thanks to the 2017 Tax Reform you now have until October of the following year after your termination to pay the loan back.
So what should you do now if you are still working and have a loan against your plan?
Try to start paying it down quicker.
While you build cash (see step #1), have your company take out a little more each paycheck for your 401(k) loan. You may not be able to get it all paid off, but every dollar can help reduce a potential tax burden should you get the boot.
#4. Think about what you’ll do next
If you do get the pink slip, what could you do next?
Are you close enough to retirement to see if that’s a financial reality? Or do you need to work some more years?
Now, I am a trained Financial Advisor, but I think you should still listen to me on this one. Those that have a written financial plan already in place when they are informed of a layoff may be in a better position to make decisions.
If you knew because you had already crunched the numbers that you could financially survive a layoff, wouldn’t that be better than frantically trying to figure things out?
A layoff can be a blessing if you’re not very happy in your current position. This can be a good time to re-evaluate and make changes.
Dig deep and ask yourself some tough questions…like, “Do I enjoy what I’m doing?” Spend time brainstorming what a better job would look like.
If you’ve thought about quitting even before you get laid off, you’re not alone; recent data shows that most Americans feel confident they could find a new job after quitting. But don’t be too reactionary – think hard about what you want before looking for that new position.
If you’re forced into the job market, this reframes that reality as a positive opportunity…a chance to improve your work-life balance, or do more fulfilling work.
#5. Update your resume
You knew this was coming. Do you even have a resume?
If so, get it out, dust it off, and update it now!
Don’t just think about the highlight reel; which projects are you working on right now that could be great resume material?
Put them down in detail, while it’s fresh, so when you put that resume to use, you don’t have to rack your brain. It’s always easier to take things out later than to put them in!
If more than 5 years has passed since you used it, ask a professional for help updating your resume.
#6. Get out and talk to people
We call this networking, but that brings to mind stale mixers where you sip cocktails and make small-talk with people you don’t care about.
Here’s a better approach. Make a list of people you want to reach out to…former colleagues, friends, university professors, college roommates, associations and their members, recruiters, and past employers.
I suggest starting this while things are good…and while you still have a job.
Let them know you’d like to catch up…find out more about what they’re doing…about who they’re working for. Tell them you want to expand your connections in the industry.
Most important of all – network with people outside your industry.
You probably have a network full of people who are like you – similar job history, similar education background, and, unfortunately, similar industry experience. If you’re in a volatile market like oil and gas, chances are that when the storm hits, these folks might be in the same boat you are.
Start looking for outliers in your network – people as different from you as possible – and focus on cultivating those relationships while you’re still employed. Ask for introductions and try to grow your network. It could mean the difference between finding yourself shut out of one industry, or opening the door to a whole new one.
People love to help. Don’t be afraid to ask!
#7. Review your Benefits
Most likely, you only have a vague grasp of what your benefits are.
For example, what kind do you have, how much money do they cost…and who pays for them?
Now’s the time to determine what benefits you would lose if you were laid off. You’ll probably lose some life insurance, disability insurance, and health insurance coverage.
Other benefits you might give up anyway if you lost your job.
What you want to know is this—what coverage would you need to secure for yourself?
Health insurance is probably at the top of that list. Do you know what you would pay if you had to continue with Cobra benefits? Find out and add that to your monthly budget.
The sticker price may shock you, but going without coverage is a huge risk and probably not worth it.
Take some time to look at your life insurance that you get through work. It may make sense to replace that coverage with something that you find on your own. You might be surprised that, in many cases, you can get a cheaper policy outside of work.
“The real opportunity for success lies within the person and not within the job.”
– Zig Ziglar
If the layoff hurricane hits you…remember that most changes life brings turn out to be blessings in the long run.
You may not be able to fully control your destiny, but if you follow the steps above, not only will you put yourself in a better position to survive a layoff…you’ll also find it helps you plan better for your future.
Are you Financial Advisor Compatible? Take the QUIZ HERE to find out. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director with United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Any references to any specific commercial product, process, or service, or the use of any trade, firm or corporation name is for the information and convenience of the public, and does not constitute endorsement, or favoring by United Capital. Please contact your financial advisor with questions about your specific needs and circumstances. © Byron Ellis