In April, Intel announced that it planned to lay off 12,000 workers. My own husband worked for Hewlett Packard over the last few years as it struggled with reclaiming the success it had in ye olden days, going through rounds of massive layoffs (before splitting into two companies). Of course, it’s not just the behemoths of the tech world that can make your job go poof. Can you get much more volatile than the start-up world, frequently closing their doors or being acquired? It’s part of the thrill, right? Whether you work at an established player, a start-up, or somewhere in between, the high tech industry is simply a volatile place to work.
The web seems to be carpeted with advice about how to survive to a layoff. But it is surprisingly quiet on the topic of preparing for one. Considering that job loss is so common in the tech sector, shouldn’t you have a plan for it?
Preparation = Options
While many of the ideas discussed below are equally applicable to a voluntary job loss, the lack of control and warning with a layoff gives that extra dimension of fear and anxiety that a little bit of preparation can go a long way towards alleviating.
I’m a financial planner, so I tend to focus on the, well, financial aspects of life. But any piece on job loss would be woefully incomplete without addressing the significant non-financial aspects. (Disclaimer: So while I am a financial planner, I am not a career counsellor or therapist.)
There’s plenty of advice out there about how to get back in the game after a layoff, and it makes a hell of a lot of sense to me to put that infrastructure into place before you really need it. Build a broad and deep professional network, keep your job skills current, and consider engaging a career coach (career counsellor) to make sure you’re positioning yourself for the best professional future. Also, cultivate those friends and peers who will support you and listen to your woes in the event of a layoff.
The most obvious immediate impact of a layoff is that you no longer have a paycheck. You know it’s going to happen, so let’s prepare for it.
Know where your money goes. No, I did not say budget. You do, however, need to know how you spend your money. Using a personal finance tool (like YNAB, Mint.com, or the tracking tool integrated in Flow’s financial planning platform) gives you a window into your spending patterns. Knowledge is power. You might find yourself making changes to your spending based purely on this knowledge. But, at the very least, if you do get laid off, you’ll have a better sense of where you can cut expenses and where you can’t.
Have an appropriate Emergency Fund. Typical advice is that your emergency fund should be able to cover 3-6 months of expenses. If you have a spouse who also brings home a paycheck or you have another source of income (that’s not highly correlated to your salary, that is), then you probably can get away with a smaller emergency fund. If you’re conservative financially (like, say, me), you should have a larger emergency fund.
Where to put your Emergency Fund? Put it in an FDIC-insured bank account or CD that has a generous early withdrawal policy, or a NCUSIF-insured credit union account. Yes, I know that interest rates on bank accounts suck right now. No, do not invest your emergency fund in anything that not is not guaranteed or that is not dead simple to get your money out of Right Now. You can get around 1% from some online banks, if you want to safely maximize the earnings on your emergency fund. Or, you can think of it, as I do, as insurance (for which you pay a premium), and not an investment (from which you hope to earn some returns).
Focus on your 401(k) loan. One of the expenses you’ll always need to cover, whether or not you have a paycheck, is your loans. Car loan, mortgage, student loan, credit card, etc. For most of these, you’re probably on a repayment plan and you simply incorporate that into your EF calculation. The one loan that can really bite you in the event of a layoff is a loan against your 401(k), because it might all be due immediately after you separate from service, right when you can least afford to pay it off. So, first, be sure to understand the terms of your 401(k) loan, and then focus on repaying your 401(k) loan as fast as possible while you’re still employed.
Consider a private life insurance policy. If you have life insurance through your employer, then when your job goes away, your policy does, too. You might have the option of converting it to an individual policy with the same insurance company, but at that point you have very little flexibility: you have to take their offer or leave it. If you instead get your life insurance originally through a private company, then you can choose from amongst many insurance companies, who will charge different premiums and have different financial ratings. You usually need life insurance if someone else depends on your income (children, a stay-at-home spouse, elderly parents). With a private policy, the protection continues, unchanged and unchallenged, regardless of your employment situation (as long as your Emergency Fund can cover the premiums!).
Remember, if you have a cushion (either through another source of income or your savings), then you have options. How soon to go back to work. Which job you take. In this industry, a layoff isn’t a guarantee, but it’s pretty likely the longer you work. Take a moment, make your plan, and then rest easy(er).
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Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Flow Financial Planning, LLC, and all rights are reserved. Read the full Disclaimer.