How to Prepare for a Layoff
- Financial PlanningIt seems odd to be writing about layoffs when unemployment in the U.S. is at its lowest since the 1960’s.
I’m in technology, though, and I recently lost some truly wonderful and brilliant colleagues to layoffs. I’m sure you’ve seen the news or are aware of people who have been impacted…and this is not the end. If you’ve been affected, please know my heart goes out to you and I wish you the very best as you find your next adventure.
Whether you’ve been laid off, are nervous about being laid off, or are 100% confident that a layoff is nowhere in your future, it’s still good to be prepared. Preparation means we work on the things we can control, and hopefully that helps us preserve our peace. We can be confident that even if we get the next pink slip, we have done all we can to minimize its impact. Taking these steps can also be considered a kind of Freedom Prep (yep, I’ve seen it called an FU plan), so that if we ever really hate our work, we can say goodbye quickly and with confidence. So, let’s start by looking at some of the ways to get prepared while you’re still employed:
1. Get clear on what you’re spending: it’s critical to know how much you’re currently spending, because you need to know how much you’ll have to cover if you get laid off. How much HAS to go out the door each month?
2. Practice living on less: while you’re still employed, it can be freeing to figure out which expenses you can reduce or eliminate. I went through some of the ways to trim a budget in a previous post about working from home. What if you could live on just your partner’s salary? What if you could cut your expenses by 25% in case you aren’t working for a while? What a great time to find out.
3. Build that emergency reserve: once you know how much you need to spend each month, it’s really important to save enough cash to cover a few months of expenses in case of layoff. Most advisors recommend saving enough to cover six to 12 months of essential expenses, but only you will know what’s comfortable in your case.
4. List and prioritize other safety nets: there are other sources of ready cash if you use up your emergency reserve. You may have any or all of the following: retirement accounts, home equity lines of credit, credit cards, bank accounts, taxable investments, cash in life insurance policies, and/or equity in your home. You might also be able to open new credit accounts or borrow from family or friends if the need arises. Take stock of the resources available to you, and if it makes sense to open a new account or two, do it now while you’re still employed.
5. Assess other ways to earn income: you may be entitled to unemployment benefits or a severance package (more on that below), or you could get temporary or contract work. You might also work a side gig or set up some ways to earn passive income. The more income streams you set up now, the less you have to rely on that “main” job. You might also brainstorm adjacent industries where you could work if you get laid off and then start researching them. Do you need to update any skills? Complete a few projects? Now is the time.
6. Network: always maintain a strong network and stay in touch with the people you enjoy along the way. Don’t be the person who pops up after five years of silence and asks for a job. Keep those channels open in an authentic way. I also recommend staying current on who’s hiring in your field, even if you’re not looking. Friends, every job I’ve had, with maybe one or two exceptions, has come from someone I knew…and I’ve had a lot of jobs. I’ve seen this piece of advice work time and time again.
7. Keep your resume and LinkedIn updated: always keep your resume and LinkedIn profile (if relevant) up to date. In your line of work, you might also have a portfolio or other business-related social media profiles, so keep them all current. You won’t want to scramble to update everything right after a layoff, when you may be stressed and upset.
8. Maintain life insurance outside of work: remember that if you only have life insurance at work, your coverage ends the same day your employment ends. For this reason, it’s a great idea to always keep some personal coverage outside of work, just in case. I heard a horror story about a man who was laid off and then killed in an accident a few days later. He only had life insurance through his company, and his family was left with very little cash after he died.
9. Be polite to recruiters: if recruiters are contacting you, they may seem like a nuisance but as long as you think they’re legitimate, they can be a source of help to you or others. If I get a note from a headhunter, I always say I’m happy where I am now but will let them know if anything changes. I also try to refer other people who might be interested in the position they’re offering. At some point, your good relationships with recruiters will pay off for you or someone you care about.
If you have already been laid off or think you might be soon:
1. Understand your severance package and negotiate: get clear about when your last day will be and which day you lose access to company resources. You will also want to know about the payout of any remaining vacation days, bonuses, commissions, and severance. If you don’t like the answers to any of your questions, negotiate. Get everything in writing and be sure you receive what was promised to you.
2. Use all the benefits available to you before you go:
a. If you want to stay at your current company, what resources are available to help you do that?
b. Be sure to use up your FSA or max out your election if you think you might be laid off. If you don’t use your FSA funds before you’re laid off, you lose them. You have 90 days after your end date to get reimbursed for any expenses you incurred before you were laid off. The entire amount you elected is available to use at the start of the year, even though you contribute throughout the year…and your employer can’t come after you for the difference after you leave. Just note that this only applies to healthcare FSAs (not the dependent-care type).
c. Your company might offer other benefits like mental health care, extended healthcare coverage, resume help, and career counseling. Make sure you know what’s available and use what you find helpful.
3. Create a plan for any vested stock options and shares: if you’re laid off, you might lose out on stock awards and/or options you haven’t been granted yet. Get clear on that. Then make a plan for what you want to do with any vested options and shares, and consider if and when you might want to sell them. Work with a tax advisor if you need to.
4. Secure your contacts: download any personal contacts and make a note of the people in your current organization who you want to keep in your network. Don’t download anything that’s against your organization’s policy, of course, but make sure you don’t lose your contacts when you go.
5. Create a plan for healthcare coverage: COBRA might be available, or you might be able to join your partner’s plan. If not, you may need to work through your state’s insurance exchange or an insurance broker to buy a personal policy. Know your options so you don’t have even one day without coverage; that would be dangerous, my friends.
6. Consider rolling your 401(k) into an IRA: most people will have a number of jobs during their working lives, which means you might also end up with several 401(k)s. For the sake of simplicity, I like to roll my 401(k)s into my IRA each time I leave a job. It’s also possible that your 401(k) has higher fees or relatively few investment choices, which might be other good reasons for a rollover. But don’t cash out your 401(k) if you can help it; you’ll end up paying taxes and probably penalties, and you'll also lose a chunk of tax-deferred savings for your future, non-working self.
And friends, don’t forget about your mental and emotional health during uncertain times. Please take care of yourself and the people you love. Here are a few suggestions I like, but you are your own person. Take what’s useful for you and ignore the rest.
1. Reject drama: oh, yes, there will be gossip. There will be speculation and stories and gossip. Even if what people tell you is true at that moment, things can change very quickly. Does it help you to get all wound up and believe everything you’re hearing? Are you taking on everyone else’s anxiety? What might work better?
2. Gather your support people: when the going gets tough, the tough ask for help. Connect with friends and family, share what’s on your mind, and ask for support. Don’t retreat into your hard, hard shell.
3. Take care: maybe you don’t have a lot of extra cash for massages and lunches with friends. If you do, that’s great! Take a break and pamper yourself. If not, you can still stay physically active at your own level, get your sleep, eat as well as you can, manage your stress, and connect with others. Please try to do those things, or you’ll just end up feeling worse.
4. Help others who have been affected: this one does wonders for me. In the past, I have been helped by so many lovely people when I’ve been laid off, so it’s very important to me to offer that help to others. Offer a shoulder to cry on, a LinkedIn recommendation, a job referral or lead…whatever you can. I promise this will come back to you 1000%, both in terms of your emotional health and the next time you need some help.
5. Take stock: do a retrospective of your recent employment history; think about your work and your life in general. What do you want to keep? What do you want to change? Envision what your next adventure looks like, envision what your new life looks like, and then start working towards it. As new opportunities come along, evaluate them with your vision in mind.
6. Change your mind: at the end of the day, you can’t control any of this, so please accept that fact. The one thing you can always control is your own thinking. Are your thoughts helpful? If not, change your mind. That may sound facile, and I don’t mean to imply it’s always easy. But changing your mind is the step that always comes before changing your situation. Yes, take your time to grieve and reflect and feel sorry for yourself and work through whatever else you’re feeling…and then try to see new possibilities and think about it in a new way. This layoff is your doorway to something even better.
Again, I really feel for those of you who have been laid off or are afraid you might be soon. I’ve been there plenty of times and that uncertainty doesn't feel good. I find it really helps to prepare in advance, as much as possible, and I hope you’ll find a few of my suggestions useful. In the meantime, take care of yourself!
