4 Steps to Take If You Lose Your Job Unexpectedly

If you’ve been following the headlines, you’re likely aware of the mass layoffs taking place in the technology industry right now. And if you happen to work at a big tech company, you may be directly impacted by industry cutbacks.

Indeed, the current market environment has been difficult on consumers and businesses alike. Yet the combination of inflation, rising interest rates, and slowing economic growth has been particularly hard on big tech companies, which tend to rely on outside funding more than other industries. Consequently, 297 tech companies have laid off nearly 95,000 workers since the start of 2023, according to Layoffs.fyi.

As a financial planner, I’ve witnessed first-hand how an unexpected job loss can set even the highest earners back financially. Whether you work in big tech or another industry, preparing for the unexpected can help you avoid unnecessary hardship.

Meanwhile, if you’re one of the thousands of workers currently experiencing a job loss, there are certain steps you can take to minimize the damage.

Here are four steps to consider taking if you lose your job unexpectedly:

Step #1: Reduce Your Budget

As your income rises, it’s natural to adjust your lifestyle accordingly. For instance, you may eat more meals out, travel more often, or indulge in conveniences like a grocery delivery or cleaning service.

Most of us fall victim to lifestyle inflation as our careers advance. However, if you lose your job unexpectedly, you may need to make some temporary concessions.

Reducing your budget can help you cut back on spending in the near-term and extend the life of your emergency fund. For example, if you have $50,000 in cash reserves and typically spend $10,000 per month, cutting your spending by just 20% can extend your savings by another month or more.

If you’re not sure how to reduce your budget, the following steps can help:

• Identify your current expenses and separate them into two categories—necessary and discretionary.

• Look for items within your discretionary spending list that you can eliminate, either temporarily or permanently. Examples may include weekly dinners out, subscription services, or gym memberships. Pause or cancel as many of these expenses as you can to reduce your spending after a job loss.

• If necessary, move on to non-discretionary expenses like mortgage and car payments, insurance, and groceries. Look for opportunities to negotiate lower rates, temporarily pause your payments, or substitute lower-cost alternatives until you’re back on your feet financially.

Whether or not you expect to lose your job, reducing your budget can be a helpful exercise in understanding where your money goes each month. It may also give you peace of mind knowing you have options if your income declines suddenly.

Step #2: Calculate Your Safety Net If You Lose Your Job Unexpectedly

Based on your new budget, calculate how long your savings will last if you don’t replace your income immediately.

If your job was your sole source of income, the easiest way to calculate your safety net is to divide your current cash level by your monthly spending estimate. For example, $50,000 cash / $8,000 spending per month = 6.25 months.

If you’re a dual-income family or collect unemployment benefits, you may have a longer runway if you lose your job unexpectedly. In some cases, you may not need to touch your emergency fund at all, but perhaps you stop contributing to savings for the time being.

Ideally, you won’t deplete your cash reserves completely. However, if you think this may be a possibility, identify other potential sources of cash to help bridge the unemployment gap. Examples may include brokerage accounts or a home equity line of credit.

Keep in mind early withdrawals from a 401(k) plan or individual retirement account (IRA) may result in taxes and other penalties. If possible, try to avoid drawing on these funds unless absolutely necessary.

Step #3: Understand Your Options If You Have Non-Cash Compensation

Many employees in the technology industry earn a combination of cash and non-cash compensation like company stock options. If you’re a tech professional and lose your job unexpectedly, it helps to know what your options are.

Many employers offer a post-termination exercise (PTE) window during which ex-employees can exercise their stock options. In most cases, this window stays open for 90 days. However, some employers offer PTE windows up to 10 years. Once the window closes, the options are rendered void.

If you have stock options, review your options agreement to see what the effective date of your options and PTE window are. Having this information on hand can help you avoid losing a potentially large chunk of your compensation after a job loss.

At the same time, you’ll need to decide if exercising your options make sense. Factors to consider include current stock price and market conditions, the company’s growth prospects, and whether there’s a secondary market for your shares.

You’ll also want to consider how the stock fits into your overall risk profile. A financial planner like Simplicity Wealth Management that specializes in non-cash compensation plans can help you determine if exercising your stock options makes sense for you.

Step #4: Take Advantage of Near-Term Opportunities If You Lose Your Job Unexpectedly

Lastly, even a job loss can have its silver linings. If you lose your job unexpectedly, consider how you may be able to use it to your advantage.

For instance, you may be able to leverage certain tax planning strategies that make more sense during lower-income years. One example is a Roth conversion, which allows you to convert all or part of your traditional IRA funds to a Roth IRA regardless of your income. Since a Roth conversion is a taxable event, it’s often advantageous to do it when you’re in a lower tax bracket.

In addition, a job loss may allow you the space and time to recharge your batteries and plan your future. Instead of jumping into a new job immediately, consider viewing unemployment as an opportunity to take a sabbatical or mini retirement, which can be just as beneficial for your career as it is for your mental health.

Simplicity Wealth Management Can Help You Prepare for and Navigate a Potential Job Loss

Unexpectedly losing your job can be emotionally and financially devastating. However, it doesn’t have to keep you from reaching your financial goals.

A financial planner can help you build resiliency into your financial plan, so your financial resources are protected if you lose your job unexpectedly. We can also help you navigate near-term challenges and opportunities and chart a new course forward, so you stay on track towards your financial goals.

Simplicity Wealth Management is a fee-only financial planning firm based in Richmond, Virginia and serving clients nationally. Our clients are primarily busy tech professionals with equity compensation. If you’re a tech professional navigating a job loss or interested in securing your financial future, please schedule a call to see if we may be the right fit for your financial planning needs.