For many workers, job security is top of mind amid mass layoffs from major companies. There’s never a good time to lose your job — and you may not know whether a layoff is coming. However, there are a few steps you can take now to protect your financial security in the event of the worst-case scenario.
5 steps to protect your finances from a job loss
If you’re worried about a potential layoff, don’t wait until the bad news comes your way to take action. There are steps you can take to position yourself to ride out a period of unemployment.
1. Know your rights and benefits
Understanding your rights following a job loss — and knowing what benefits are available to you — can help ensure you get everything you’re entitled to.
Look over your employment contract to find out what happens to your insurance benefits upon termination, whether you’ll still have access to any employee benefits once your role comes to an end, and if you’re entitled to a severance package.
You should also visit your state’s unemployment website, as each state has its own eligibility and filing process. Learn more about waiting periods, required documentation, and benefit amounts (and how long they last).
Once you’re armed with this information, you can make a game plan in case you lose your job.
2. Revisit your budget and have a backup plan
Start by reviewing your current monthly spending and income. You can use a budgeting app or an Excel spreadsheet to categorize expenses into fixed and variable expenses. This will give you a clear picture of where your money goes right now and where you need to scale back.
Once you know your baseline, the next step is to create a lean version of your budget that you can switch to immediately if your income were to drop. This version should focus entirely on covering essentials such as housing, food, transportation, insurance, and minimum debt payments.
In this lean version of your budget, cut discretionary spending such as subscriptions, gym memberships, dining out, or streaming platforms. The goal is to identify the absolute minimum you need to live comfortably while job hunting.
While a job loss is never ideal, knowing your numbers and having an alternative budget ready to go can help you make more informed decisions about how to use whatever income and resources you do have more effectively.
Read more: Your complete guide to budgeting
3. Pad your emergency fund
An emergency fund provides a financial cushion when the unexpected happens — whether your car breaks down, you experience a medical emergency, or you lose your job. Many experts suggest keeping at least three to six months’ worth of living expenses in an emergency fund, but you may want to aim for more to give yourself more breathing room in case it takes several months to find a new job.
The exact amount you can comfortably contribute to your emergency fund each month will depend on your unique circumstances. But one way you can help your balance grow faster is by parking your money in a high-yield savings account, where it will earn a competitive interest rate.
Read more: The 4 best (and worst) places to keep your emergency fund
4. Prioritize paying down debt
Making debt payoff a priority is never a bad idea, but it’s especially important if you’re worried about a potential job loss. Monthly payments and interest charges eat into your hard-earned income, which could be put to better use covering your essentials.
By making extra payments toward your debts now, you’ll decrease the amount owed, pay less in interest overall, and be free of those payments months or years sooner.
You should also review the terms of your existing debts to see if you can secure a lower interest rate by refinancing. It’s also worth checking with your loan provider or credit card company to see if they offer any type of hardship assistance or forbearance programs if you can’t afford to make your payments.
Read more: What’s more important: Saving money or paying off debt?
5. Diversify your income sources
Having more than one income stream ensures your financial security isn’t wrapped up in a single job. Now could be a good time to take inventory of your professional skills, certifications, and hobbies that could translate into income-generating opportunities.
For example, even if you’re employed full time, consider testing the waters with freelance work that could become reliable income later, such as writing and editing, graphic design, virtual assistance or administrative support, bookkeeping, tutoring, or consulting in your field.
Just be sure that you aren’t violating any rules your current employer has around outside work. And be sure to keep detailed records of your side income and related expenses, as you’ll need this information when you file your taxes.
Read more: How to make more money with a side gig: 6 tips for success