By Jasmin Brown, BDO First Call Debt Solutions

BDO First Call Debt Solutions

5 Ways to Prepare Your Finances for a Job Loss

Mar 20, 2020 | 12:49 PM

In an uncertain economy, a job loss or a reduction in household income can be a real possibility – a possibility you can and should plan for.

Cut-backs, layoffs and terminations don’t always come with advance warning. That is why planning ahead is so important. If you work in an industry that is susceptible to downsizing, now is the time to ask yourself, If my household income was reduced, how would my finances be affected?

Preparing for the worst-case scenario

Even if you are certain that your job is secure for now, it is best to be prepared for a worst-case scenario. These five steps can help you create a plan of action.

1. Review your budget and focus on debt repayment.

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Are you currently living below, within or beyond your means? Is your debt load manageable or overwhelming? Are you able to save for short-term and long-term goals? Now is the time to take a closer look at your budget. If possible, trim any unnecessary spending to ensure your expenses do not exceed your income.

Focus on repaying any outstanding debt. If your debt load is manageable, try to increase your monthly payments. A solid debt repayment strategy can help. If you are only able to make minimum payments on your outstanding credit card and loan balances, or you are missing payments, your best course of action is to seek professional assistance. A Licensed Insolvency Trustee can review your situation, explain all viable debt relief options and help you choose a solution that will work for you.

2. Access your company benefits.

Dental visits, glasses, and prescriptions are heavy out-of-pocket expenses. Make sure you are regularly accessing your employee benefits to the fullest. Keep up with regular prescription refills and dental appointments. Many employers offer to pay a portion of the cost to see a chiropractor or physiotherapist. If you need these services, now is the time to schedule those appointments. Taking advantage of your company’s benefits now could mean less financial stress if you find yourself unexpectedly unemployed in the future.

3. Add to your emergency fund.

An emergency fund is made up of savings that are set aside specifically for unexpected or emergent expenses. Accessing your emergency savings, along with cutting expenses wherever possible, will help you stay afloat and avoid accumulating additional debt while you are searching for work. Financial advisors and personal finance experts typically recommend that you have enough emergency savings to cover three to six months’ worth of expenses.

4. Evaluate your mortgage

Is refinancing a wise option that could save you money? With the recent drop in interest rates, it is worth checking with your lender to figure out whether refinancing is a viable option. Alternately, now is the time to obtain pre-approval for a home equity line of credit, which you could access for emergency purposes in case of a job loss. Approval will likely be easier when you are employed.

However, it is important to understand that using a line of credit to cover living expenses should be a short-term solution. Borrowing to cover your monthly bills and spending for a longer period of time may cause you to take on more debt than you are able to repay.

5. Stress test your finances

Practice living on less now, and bank any dollars that you save. Look for ways to reduce each area of living expenses such as groceries, utilities, entertainment and travel. Cutting back before you actually need to gives you the opportunity to iron out any difficulties beforehand.

Planning ahead is the best approach to help you avoid financial trouble during unemployment. Look for ways to supplement your income, polish your resume and seek financial help if things become unmanageable.

How do you deal with financial emergencies? Share your ideas with us on Twitter or Facebook!