Should you be preparing for a furlough or layoff?
Right now we are in the middle of the biggest global health crisis in decades. Definitely in my lifetime.
Probably the most unsettling part of it is the uncertainty we all face. There’s not a human being on the planet that knows how long it will last or how far we’ll fall.
And what will life be like on the other side? Will America’s economy bounce back quickly, like President Trump keeps saying? Or is will this recession take months (or even years) to recover?
There are too many unknowns to say for sure.
That’s why the best thing we can do is prepare for the worst case scenario. At this point, I don’t think any measure taken would be too much.
Being overprepared might just be the answer to weathering this storm. That’s why preparing for a furlough, a job loss, or any other unexpected decrease in income is a wise move right now.
My husband was furloughed from his job of 20+ years last March. The loss of his paycheck was sudden and unexpected, and we were both in shock for a few days.
We’d never been without consistent and reliable income, so it was a bit stressful. But, it’s been over 6 months now and we still have a roof over our heads and food on the table!
I wish we had time to better prepare, but things have worked out because of the good financial habits we try to keep. We can still pay all our bills, but we’ve had to make some adjustments to our lifestyle.
A year ago, nobody could have predicted the world would be upside down today. And, it doesn’t look like it’s going to get better any time soon.
Maybe you’re concerned about losing your job or getting a pay cut.
Taking some precautions with your finances now can equip you with a stronger safety net later – one that could perhaps keep you out of deep waters. You don’t know what lies ahead, but you can take steps now to be ready for whatever it is.
Here are 6 tips to prepare for a possible loss of income, and survive a financial recession.
#1 Deflate your lifestyle
Make the decision now to cut back on discretionary spending.
This way, you can make adjustments slowly over time instead of being forced to give up everything at once.
We all have comforts that we indulge in. Those things that make life more pleasant and fun.
For me, it’s going to the movies or eating out. But both cost a premium compared to watching a DVD at home or making my own dinner.
To prepare for a loss of income, find less costly ways to enjoy life.
Maybe you find comfort in Starbucks lattes or Target clothing. Make the effort now to decrease or even eliminate those non-essentials you’ve gotten used to buying habitually.
You’ll learn to be satisfied with less expensive alternatives while saving money and preparing for a furlough or other decrease in income.
Also, get real with your needs versus your wants.
Be honest with yourself about what expenses are really necessary and what’s extra. Once you’ve defined both, it’ll be easier to keep your financial priorities in order.
#2 Save enough to cover 3 to 6 months of expenses
Building an emergency fund is one of the best things you can do to furlough-proof your finances.
But, it can take time, patience and diligence. Especially if you’re living paycheck to paycheck.
Now is the time to live on less than you earn. This might require some major adjustments or sacrifices, but it’s critical to securing an emergency fund that will provide stability in the event of a job loss.
Make savings a priority. Put it in your budget. Pay it like a bill.
Be persistent and consistent with putting aside a portion of your income every month.
One way to support your efforts is to open up a high-yield savings account. Online banks typically offer better rates than those that have to pay for a physical building.
And don’t discount any amount you can add to your fund. Even if you only have $20, don’t think it’s not enough to make a difference.
Every dollar counts.
#3 Get aggressive with debt payoff
It’s tough to focus on paying off debt while also building up an emergency fund. However, both are important when preparing for a furlough.
The last thing you want is debt payments draining your finances while you’re trying to put food on the table.
So, make a plan that works for you. Here are a few ideas:
- As you cut expenses, divide the excess between debt and savings evenly.
- Build up a small emergency fund first (like, $1,000) and then focus on paying down debt exclusively before continuing to save.
- Use funds from your guaranteed income (like your paycheck) to use for savings, then use another source to pay down debt. This could be a side gig, investment income, or even money saved from a budget area that you’ve reduced.
Also, transfer debt to lower interest rates so you reduce your total debt balance. This way, you can get it paid off faster.
I know it’s tempting to put all of your extra money in savings, and this definitely needs to be the priority.
But carrying debt while being out of work will eat up your emergency fund faster, so try to pay off as much as you can, as soon as you can.
#4 Beef up your skills
In any major recession, job loss is always a possible consequence.
Even if you feel secure in your current position, any business will do what it needs to do to stay afloat. Even laying off valued workers.
There are a couple of things you can do now to increase your chances of staying employed if the economy tanks.
First, take advantage of specialized training that your company offers, so you can position yourself as a versatile employee.
Or, you can pay for that extra certification on your own dime by taking college or continuing education classes.
Either way, make sure your boss knows you’re working on strengthening and adding to your skills.
Second, seek out opportunities to cross-train in other departments. Maybe you could offer to partner with someone in a separate unit to work on a project.
You could even ask someone in another area to mentor you on your lunch break. This will set you up to be the employee who is flexible and knowledgeable enough to cover a variety of roles.
Even if your efforts don’t result in keeping your job, you’ve definitely made yourself more marketable when looking for another one.
#5 Create passive income streams
Not many people feel like working after they get off work. But, you might find yourself faced with needing two lesser-paying jobs just to cover all of your bills.
And that would suck.
If that thought makes you shudder, start working on ways now to create passive income streams. The reason you want to start now is because it takes time for a passive income stream to become a significant source of earnings.
Here are a few ideas to create passive income:
- invest in dividend stocks, CD ladders or annuities
- have a rental property
- write and sell an ebook online
- create an online course
- sell stock photos
- create and sell an app
- affiliate marketing
- sell digital products on sites like Shopify or Etsy
- rent out a room or a car
- be a freelancer on Fiverr or Upwork
- sell blog memberships
- place ads on your website
Some of these are more “passive” than others, and many rely on internet traffic. You need time to build up a customer base and generate enough interest to start making an income.
If you have an idea, get started now and use your spare time to start building a passive income stream.
Give yourself a head start so you can build a significant income source while preparing for a furlough or job loss.
#6 Have a clear vision and a defined plan
Make sure you know what your financial objectives are in the long run. Don’t lose sight of your vision for retirement and beyond.
In times of crisis, making impulsive financial decisions is common. But don’t let overwhelming emotions deter you from staying on track.
A furlough or job loss is temporary, and eventually the economy will turn around and you’ll find regular employment again.
Don’t make adjustments that will negatively affect your future beyond it. Review your life goals with your partner and determine how you can weather the storm with minimal effects to your long-term plan.
It’s a good idea to get professional advice, but never make a decision based on how you’re feeling. Keep your goals front and center, and stay focused on the vision you have for your future.
Don’t procrastinate. Start now.
If you’re staying connected with what’s going on in the world right now, you might be anticipating or experiencing a loss of income.
But, you may also be focused on just getting by this week, much less thinking of how you can prepare for months from now.
The world is going through a tough time. But I want to encourage you to keep one eye on the present and the other on the future.
Because both need financial stability.
According to the National Bureau of Economic Research, the average recession from 1945 to 2009 was 11.1 months. Start taking measures today that will help you get through one with minimal damage to your finances.
If you focus on what you can control instead of worrying about what you can’t, you’ll be better prepared to handle any kind of crisis and reach the other side even stronger.
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