Many people assume that job loss won't happen to them, so when it does, it is easy to get caught off guard. The truth is, there is no guarantee that even the most "secure" job will remain yours forever, which is why it is worth being financially prepared for unemployment, even if your job feels very stable right now.
Follow the tips in this guide to prepare financially for job loss, so if the worst is to happen, you have options in place.
1. Work out Your Essential Monthly Costs
Start by making a list of your non-negotiable monthly expenses, so you know what essential spending you will need to continue to cover even after losing your job. This will typically include rent or mortgage, utilities, food, transport, insurance and minimum debt payments. You can use a budget calculator to add up all your outgoings.
2. Build a Realistic Emergency Fund
From here, build an emergency fund that will cover your living expenses for three-to-six months in the event of losing your job. It might take a while to reach this figure, so aim to save enough to cover one month of living expenses to begin with. Make small, regular contributions to build your fund over time.
3. Understand Your Unemployment Benefits and Rights
Even if your job is not at risk, it is worth checking your contract and company policies, so you understand what you are entitled to if you are made redundant. This might include notice periods, redundancy pay, unused holiday pay or other employee benefits. Unlike in many other countries, there is a social safety net in place in the UK and you may qualify for Jobseeker's Allowance, which is worth reading up on in advance.
4. Create a “Bare-Bones” Budget Plan
It can be reassuring to have a plan in place for spending during unemployment, especially if you think your job might be on the line. Create a stripped-back version of your normal budget that only covers essentials. You can use this as a ready-made plan that you can switch to immediately if needed, rather than scrambling to figure it out during a stressful time.
Related Reading: How to Manage Your Budget After a Pay Cut
5. Keep Your CV, Skills and Network Up to Date
As an employee, one of your biggest assets is your knowledge. Your job search will be far less stressful and much more successful if you continue to generate value in your role. So, don't get complacent in your current position. Keep your CV and LinkedIn profile updated and stay in touch with professional contacts. The faster you can find a new job, the less financial strain you will face.
6. Consider Additional Income Streams
You might feel more secure in your current job if you have extra income from a side hustle, like freelance work or even passive income. While this will not replace your full salary, it will help reduce the gap if you lose your day job. Just make sure your workplace doesn't have policies that prohibit side jobs, especially if they could interfere with your current work.
Final Word
Losing a job is a daunting prospect, but it is not the end of the world. Preparing a plan to cover your expenses in the short term can help reduce your stress while you re-enter the job market. The more money you can save in an emergency fund, the greater your peace of mind, and the more time you give yourself to make careful decisions on your next steps instead of acting out of urgency.
