Most of the time, people don’t know in advance that they’re going to lose their job. The news comes as a complete, and unwelcome, surprise.
But what if you did have some advance warning that your job was about to come to an end? Perhaps you’re a contract worker and your responsibilities are almost fulfilled. Maybe your organization has given notice that layoffs are coming. Or perhaps you are ready to voluntarily leave your job to start your own small business or pursue a dream.
I’m actually in this situation right now. My husband and I are in the middle of preparing to become a one-income family, and we’re both nervous and incredibly excited about the change. If you know you are about to get an income reduction or lose your job, some advanced planning will transform a potential calamity into an opportunity.
Here are 7 strategies to prepare for an impending change in your finances:
1. Revisit Your Budget
If you’re facing a job loss, you need to plan and make your household budget immediately. If your current budget was written with two incomes in mind, you will need to go through and analyze your goals now that you know you’ll only have one coming in.
Trim whatever you can out of your spending. Look at your cable TV subscription, your cell phone or home phone plan, your insurance, and any other monthly expenses to see what you can reduce or eliminate. You can usually save money by lowering the quality of your plans. For instance, reduce your cell phone’s monthly minutes, raise your insurance deductibles, or lower your Internet bandwidth for a lower monthly fee. You can even cancel cable altogether and watch TV online instead.
You might also want to consider selling one of your cars on Craigslist, renting out a room in your home, selling your home altogether and downsizing, refinancing your mortgage to take advantage of lower interest rates, or taking your kids out of professional child care to be cared for at home.
2. Pad Your Emergency Fund
Most experts recommend having six months of living expenses socked away in your emergency fund. But in today’s economy, it’s smart to have enough for at least eight months.
You need to be able to cover rent or mortgage payments, groceries, insurance, gas, and even additional unexpected expenses like car repairs.
Starting now, do whatever you can to add money to your emergency fund.
3. Supplement Your Income
Once you’re living on less income, you’ll quickly see that any money you can bring in is helpful.
Brainstorm your ideas and write them down.
4. Get Out of Debt
Getting out of debt, especially high-interest debt, should be a top priority before you leave or lose your job. Do whatever you can to pay off your current debt, or transfer high-interest debt to a lower-rate card. Consider finding ways to supplement your income now, while you are still employed, and earmark those extra funds to pay down your debt.
If you have enough advance notice, start attempting to live off your reduced income right away. My husband and I did this last year, and it ended up working out well. We lived off what I made, and saved everything he did.
Taking the time to practice before “the real show” can make you feel more comfortable when the time comes, and allows you to work out any kinks or cash flow problems you might not have anticipated.
6. Don’t Forget About Retirement
Do you have a individual 401k retirement plan with your employer? If so, you need to spend some time thinking about what you want to do with it. Many organizations will let you leave it where it is if you have a minimum amount in your account already (usually $5,000 or more). In other cases, you may have to transfer your funds.
Most experts recommend an IRA rollover for retirement. Talk to a financial planner in advance to figure out the best approach for you.
7. Start Networking
Everyone’s situation is going to be different. Some of you will want to try and find a new job as soon as possible. Others will decide to start a business, or even take some time off to pursue a personal dream, like traveling or volunteer work.
Whatever your plans are, make sure to put your network of friends and colleagues to use, especially when you start looking for a new job. Use Facebook and your LinkedIn profile for business networking; they can be invaluable sources for recruiting and finding new opportunities.
Losing or leaving your job can be an incredibly nerve-wracking experience, even if you have done everything you can to prepare. But keep in mind that your experience is up to you. That is, you can look at the situation as a catastrophe, or as an open door.
I’m choosing to see our own situation as an open door. Yes, I’m a bit nervous about being a one-income family. But I’m also really excited about the opportunities that are going to open up once this happens.
What about you? Are you facing a voluntary or involuntary job loss? Have you already gone through this? Please share any tips or advice you may have!