3 key tactics for financially preparing for job loss

NNatalie February 26, 2024 7:01 AM

A job loss can be a major financial shock, but with the right preparation, it doesn't have to be a disaster. Here are three key tactics you can use to guard against the financial impact of a job loss.

Building an emergency fund

An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly. Here are some of the top emergencies people face: job loss, medical or dental emergency, unexpected home repairs, car troubles, unplanned travel expenses, and legal issues.

Experts generally recommend that you have enough in your emergency fund to cover three to six months' worth of living expenses. For example, if your monthly expenses total $3,000, aim for an emergency fund of $9,000 to $18,000.

Here is how you can start building your emergency fund:

  1. Determine what your monthly expenses are.
  2. Decide on the amount you want to save.
  3. Set up automatic transfers to your savings account.
  4. Keep the fund in a separate, easily accessible account.

Cutting back on expenses

If you're at risk of losing your job or you've already lost it, it's time to take a hard look at your budget. Identify any non-essential items that you can cut back on. These might include dining out, entertainment, subscriptions, and gym memberships.

Here are a few ways you can cut back on expenses:

  • Cancel unnecessary subscriptions and memberships.
  • Eat out less and cook at home more.
  • Switch to a cheaper phone or internet plan.
  • Sell items you don't need or use.

Diversifying your income streams

Relying on one source of income can be risky, especially if you're facing a potential job loss. Diversifying your income means having multiple income streams, which can include rental income, part-time work, freelance work, or selling goods online.

Consider these ideas for diversifying your income:

  • Rent out a room in your house.
  • Start a side business.
  • Sell your skills as a freelancer.
  • Invest in dividend-paying stocks.

Remember, preparing for a job loss financially is all about creating a safety net that can help you weather the storm. By building an emergency fund, cutting back on expenses, and diversifying your income, you'll be well-prepared to handle whatever comes your way.

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