The U.S. unemployment rate is gradually improving, but many workers understand that their jobs may not be safe. Instead of just hoping they hang on as the fallout from the pandemic worsens, it’s important to take steps now to secure another job or prepare financially for a job loss.
One of my clients, an airline executive, took a promotion several months ago that allowed her spouse to stop working and stay home with their children. The promotion had all of the usual perks — a bigger paycheck, more incentive compensation and a nice corner office — until the COVID-19 pandemic turned her career and life upside down.
Quickly realizing the airline industry would be hobbled for several months, possibly years, she reached out to a former boss at another company and secured a job interview. The executive landed the new job, which included a compensation increase above her recent promotion. And she also left her former company with a severance package, a double whammy of good fortune created by unexpected change.
Not every executive or manager will be as fortunate. Approximately 6 million higher-paid workers are potentially at risk of losing their jobs, according to an estimate from Bloomberg Economics.
If you are concerned about your job security and subsequent financial well-being, here are five recommendations to take now:
No. 1: Evaluate Your Current Expenses
Do you know how much money you are spending monthly? Often, when our lives are swimming along with the current, our lifestyle and monthly expenses can creep higher. Take time to evaluate your family budget and figure out how much you are spending and if there are places you can cut back quickly.
The key information to determine is how much money is needed to pay for essential expenses — mortgage, car and insurance payments, food, utilities and other key items for everyday living. Understanding this value will help you analyze the next steps needed if you were to lose your job.
Most of my clients often find expenses that can be eliminated, even those that have been staples in their budget for many years. These expenses include monthly lawn care, home cleaning services and cable television, and cutting them can often save them hundreds of dollars each month.
No. 2: Beef Up Your Cash Reserves
A prudent amount to keep in a cash reserve is normally six to 12 months’ worth of living expenses, and in this economic environment many people are certainly taking steps to ensure they are prepared for an emergency. Since the pandemic took hold, the U.S. household personal savings rate jumped to 32% in April — the highest since the 1960s — and 23% in May, according to the U.S. Bureau of Economic Analysis.
If your cash accounts are a little higher even as you have concerns about your job situation, don’t make the mistake of spending this cash on a shiny new toy. Putting cash away for a rainy day, or month, can be challenging to do for most everyone, but accomplishing this simple step right now will help relieve pressure in other areas of your life.
Establishing a cash reserve will allow you to continue to execute your long-term investment strategy, because your potential near-term expenses are covered. Concerns about job loss may be front and center in your mind, but your plans for retirement do not have to be materially derailed.
No. 3: Lay Out your Liquidity Ladder
Do you know where to find additional cash if you were to end up in a financial bind? After tapping money in your emergency savings account, things will start to get a little more complicated.
Perhaps you simply have a garage full of stuff that can be sold on local neighborhood exchanges and generate a little cash. My family has wisely used the additional time at home these past several months to clean out our garage and sell some old baby clothes and strollers, using those funds for essential expenses to avoid dipping into our savings.
Taxable investment accounts, Roth IRA contributions or your 401(k) retirement account may be options for liquidity, but be sure to consider any tax implications of tapping these financial assets before you use them.
Your taxable investment account will probably be the most logical place to look for smart ways to raise cash by strategically selling positions or doing some tax loss harvesting. However, each person’s circumstances are unique and evaluating the best course of action for you should be considered.
The Coronavirus Aid, Relief and Economic Security (CARES) Act allows anyone with a financial hardship to withdraw up to $100,000 from their 401(k) retirement accounts and eliminates the 10% early withdrawal penalty for those under the age of 59½. One-third of the money withdrawn will be included as income in your taxes for each of the next three years, unless you elect otherwise. The CARES Act also allows you to return the funds you distribute back into your 401(k) within three years if you choose to do so. However, you will miss out on the tax-deferred growth the funds would have gained if you take a withdrawal from your 401(k).
If you have a home equity line of credit, this may also be a bucket to evaluate using in a prudent manner. Similarly, if you do not have a home equity line of credit, now is a good time to explore opening one as interest rates are at historically low levels.
The important concept here is to start thinking through where you can find liquid cash that does not have a negative tax impact and minimizes disruption to your retirement investment accounts.
No. 4: Reach Out to Your Network
The reality is that extreme uncertainty in these unprecedented times has brought us together in new ways. The airline executive I work with did her homework and connected with the right former colleague to land a new job.
Contacting individuals in your network and catching up on the impact they are experiencing may help you to make a connection for a new job opportunity. Old colleagues can help you understand how the job field is changing and alert you to new opportunities that you would not have otherwise known.
You can also reach out to friends who you know have started new jobs within the past year. Have your friends connect you with any recruiters who may have helped them find a new opportunity. We are in unorthodox times, so these unique times call for unique actions.
The key here is to be diligent and methodical in your approach. You are probably dealing with a lot of stress, so do not book 10 networking calls in a week and stress yourself out even more. Plan to connect with two to three people in a week and make the most of your conversations.
The tendency to feel helpless when we feel looming bad news coming our way is a common human emotion. However, the reality is that there are things you can do to prepare for a potential job change and, in the process, turn a potential bad situation into a good one.
Ian Clemens is an Associate Wealth Adviser at Brightworth, where he works with a wide array of clients from corporate executives and business owners to retirees and entrepreneurs. He has broad experience helping clients with retirement planning, tax planning, estate planning, insurance, charitable gifting and investments. He is a CERTIFIED FINANCIAL PLANNER™ practitioner. He is also a CFA Charterholder and a member of the CFA Society of Atlanta.
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