Meta announced yet another round of layoffs Tuesday and the Fed pointed to higher interest rates — both flashing red signs of a possible recession.
Whether an economic slowdown occurs or not, it’s always a good idea to put your financial house in order. Here are some key steps, as TheStreet.com contributor Beau Kemp lays out, to put yourself in a stronger position in the event of a layoff.
1.) A Reserve Fund of 6-12 Months of Expenses
People early or mid career rarely think to build an emergency reserve fund, says Kemp, a financial planner with Sensible Money in Chandler, Arizona. Advisers typically recommend that people have three to six months’ of savings to cover expenses in the event of an emergency or a job loss.
Those in industries with high turnover or at a higher risk of a layoff, such as financial services and technology, which have been the hardest hit with the current layoffs, might even want to have 12 months of cash at the ready, Kemp says.
In line with an emergency fund, people should tamp down their spending.
“Now is not the time to take on more than you can handle with unnecessary purchases,” Kemp says.
2.) Updated Skills
Your own human capital is your biggest asset in your working life. Learn new skills, or pursue updated and relevant certifications, Kemp suggests.
Related to this, other financial planners advise networking a few hours a week. You could do this as simply as reaching out with ideas to people in your LinkedIn network.
3.) A Stress-Tested Retirement Savings Plan
Those approaching retirement would be wise to figure out their hiring prospects and commensurate salaries, and revisit their retirement goals, earnings and savings abilities, Kemp says.
This will instruct you whether you can retire in your desired year, or whether you will need to push that retirement date out or reassess your lifestyle in retirement, Kemp says.
4.) Budget & Savings, Revisited
People age 50 and older can contribute an additional $7,500 a year, or “catch-up” amount, to their 401(k) tax-qualified retirement plan, and an additional $6,500 to their individual retirement account (IRA).
There’s always the option of a Roth 401(k).
It's a smart exercise to figure out if you want to contribute more to your retirement account or if that money would go to better use in a savings account, and if you want to lower your taxes now through qualified retirement savings, or put at least some of your money in a Roth 401(k) or IRA, Kemp says.
Those 55 and older can also withdraw money from their 401(k) penalty-free, so there’s that option to consider, too, Kemp says.
The bottom line, he concludes, is it’s important for people to prepare themselves to be in the strongest financial and emotional position in the event of a layoff.
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