Through pay raises or high-paying job, Americans are experiencing the fastest wage growth in decades. However, experts believe the job market is slowing, largely due to the Fed raising interest rates at the fastest pace since the 1980s and inflation still at 40-year highs.
The unemployment rate rose to 3.7% in August, leaving Americans unemployed to 6 million. Additionally, layoffs are up 30 percent from a year ago, according to employment data firm Challenger, Gray & Christmas.
Many workers may be wondering about their job security and how best to plan for potential sudden unemployment. If you find yourself suddenly unemployed in the near future, here are five ways to help you prepare financially.
1. Build your emergency fund
If you were unemployed today, how many months would your life savings last? Experts recommend putting at least three to six months’ worth of expenses into an emergency fund.
When you have money in the bank to pay your bills for a few months, you will feel less rushed when looking for a job. This way, you can thoroughly weigh the pros and cons of each job opportunity without having to say “yes” to the first opportunity you encounter.
A great place to start an emergency fund is “where you can get the highest return on your liquid savings,” says Barbara O’Neill, a Rutgers professor emeritus and CEO of Money Talk, a financial planning and education company. One such place could be an overnight deposit account in online banking, she added.
2. Part-time job
O’Neal also recommends taking a side business, “so you have another source of income to fall back on.” A side business is something you do for income outside of your main job, and it can be a way to make money while doing something you love good way. Examples include selling on an online marketplace, tutoring, freelance writing, or creating art.
Setting up your part-time job while you’re still working ensures you have some income if you find yourself out of work. Even a small monthly income can help supplement the income you draw from your emergency fund or from unemployment.
3. Stick to a budget
Setting a budget allows you to create a plan for how you will spend your money each month so you can live within your means and increase your savings. A budget can help you stay afloat in the face of layoffs or other sudden job losses. It should cover everything from your housing, transportation, and groceries to monthly subscription services and your cell phone bill.
You can also use your budget to identify areas where you can reduce spending. Dollars that you can take out of various categories can be repurposed for savings or debt reduction. If you find yourself out of a job, you’ll be thankful you’ve worked early to cut expenses.
“Creating a budget is the first step, but the most important follow-up is tracking your monthly spending and comparing it to your budget,” said Greg McBride, chief financial analyst at Bankrate. “When you can see where your money is going, in which categories you are overusing it, and be accountable for every dollar you spend, you can be disciplined about your savings and get the most out of your savings Chance.”
4. Pay off debt
Paying off debt is just as important as saving money when preparing for unexpected unemployment. Having little debt when you’re unemployed can give you more freedom to do things like change careers or achieve a dream of making a little less money than you used to.
“Commit to saving and reducing debt at the same time,” says Money Talk’s O’Neill. “Example: For every dollar released, put half (50 cents) in savings and the other half (50 cents) in debt. If you don’t save to pay off debt, you don’t have money to fall back on in an emergency.”
5. Invest in job-seeking essentials
If you invest some time and money now in something that will help you find a job, you can take off when the time comes. For example, keep your resume up to date by making sure it includes your most recent roles and professional responsibilities.
“Your resume has a much bigger impact on your financial future than you might think,” says Angela Jones, a board-certified resume writer and managing director of Senior Resume and Career Services. “Once you’ve shown employers the value you bring to the table, the image your resume conveys can mean the difference in [annual] salary could be $10,000 or more.”
In addition to updating your resume, now is a great time to start organizing your interview attire. If you’re not in a hurry to buy such clothes, it’s easier to search for deals and find the best deals. If you suddenly lose your job, taking the time to buy and coordinate several interview outfits now can save you money and the hassle of finding them.
Other ways to prepare for sudden unemployment
Adjusted tax deductions
One way to save more money now is to adjust your tax deduction so that you get more cash back on each paycheck, rather than a substantial amount on your spring tax return.
“I don’t like withholding tax to get a big refund,” says O’Neill of Money Talks. You have to wait a year to get your money, the IRS pays no interest, and your refund can be stolen and delayed by identity thieves. ”
Research Health Insurance
If you are unemployed, learn about your health insurance options. Having this information on hand can help limit the time you can be uninsured if you are removed from your current employer’s plan. Possible options include joining a spouse’s employer plan or being covered by the Omnibus Omnibus Budget Adjustment Act (COBRA), the Affordable Care Act’s health insurance marketplace, or Medicaid.
Networking
Keeping in touch with former colleagues and meeting new colleagues is key to recovering from layoffs or other job losses. This can help you hear about job openings through word of mouth, and you may hear about them as soon as they become available. Joining professional associations and attending industry conferences are great ways to network.
Bottom line
Feeling unemployed all of a sudden can be very stressful, but a little preparation ahead of time can relieve some stress when that time comes. Key considerations include building an emergency fund to cover living expenses for a few months, having little or no debt, and sticking to a budget that will keep you within your means.
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