Losing a job is an unfortunate life event that directly impacts one’s financial stability and self-esteem. A career change can also lead to similar uncertainties. While both these events are hard to predict, one can always stay prepared in terms of one’s finances. This involves taking proactive steps like creating an emergency fund to soften the financial blow. Such measures help set up a cushion during unemployment, covering basic expenses and lowering financial stress.
1) Increase the Cash Reserve
One of the top financial tips for a career change or to prepare for a job loss is to increase one’s cash reserve. This means one has to set aside funds to cover unplanned expenses. It can also be used in place of a paycheck to pay for living expenses. In general, it is recommended to save around three to six months of overall expenses as part of the cash reserve. For those who are stressed out about future career prospects or are working in an industry where job uncertainty is common, it can be helpful to add more money to the emergency fund to cover monetary requirements for the long term. This can work like a safety net, giving a sense of security to sail through uncertain weather. In cases where one is a high-income earner or has a job that demands specialized skills, it is recommended to have a hefty emergency fund reserve, since it can take more time to find similar job opportunities. This same principle applies to families that have a single income source.
2) Pay Off Debts With High Interest
If used well, debt can often be a helpful tool while building wealth. However, having a lot of debt with high interest rates can also pose severe financial risk. Debt payments are like fixed costs that must be settled even if unpredictable events like job loss occur. This is why, when doing career transition financial planning, it is important to take into account uncertainties regarding future income. So, one must take an aggressive and proactive approach to tackle all the high-interest debt as soon as possible. This means paying off all the personal loans and credit card balances.
3) Reduce Expenses
While budgeting after job loss is highly important, it is equally necessary to be proactive before it happens. This should be done by reviewing the various expenses and identifying what costs can be reduced or removed. The next step is to draw a budget that is reasonable enough to manage with limited money. Being aware of the expenses makes it easier to change one’s spending habits in the unfortunate event of job loss and even in between career changes. Deciding what is essential and what is non-essential is important when thinking about how to cut costs temporarily. Whenever there is uncertainty about the job, one can start looking at ways to limit or stop spending on unnecessary subscriptions and services.
4) Look Into the Severance Policy of the Employer
Whenever one notices signs or changes that indicate a potential restructuring in an organization, it is wise to start thinking about surviving unemployment financially. To do this, look into the organization’s policy and the contract of employment to learn whether there will be severance pay if the employment is terminated. In case there is a severance package, evaluating it may help determine how much time one will have to find a new job. But, it is important to know that severance pay is often not legally guaranteed. An organization can change its policy anytime. This is especially true for an employer who is navigating financial troubles and, therefore, cannot fulfill their obligations related to severance pay.
5) Take Advantage of Employee Benefits
If there are concerns about potential job loss in the future, it is best to look into the various ways in which one can take advantage of employee benefits. For instance, if an organization has flexible work arrangements, it makes sense to avail of remote work or flexible hours before one’s employment ends. Some employers do not have a policy to pay out vacation days that an employee has not used. In such scenarios, it makes sense to use as many vacation days as possible to take advantage of this benefit.
6) Get Financial Advice From a Professional
It can seem challenging to plan for financial stability in uncertain times, whether due to a job loss or a career transition. In such a situation, one can seek financial advice from experts. The professional can be from a credit counseling service, a financial coach, a certified financial planner, or a financial advisor. One can also get information from a state unemployment office in their area. A professional financial advisor can give the necessary assistance to set up a reasonable plan and provide information on how to manage unpredictable expenses. They can also offer emotional support, which is often required in such cases, so that a person has the confidence to make crucial decisions about their finances.
