How to Prepare Your Finances for a Layoff

1. Build an Emergency Fund

An emergency fund is one of the most important tools to help you weather a layoff. It can cover essentials like rent, groceries, utility bills and debt payments while you search for your next job.

It's generally recommended to maintain three to six months' worth of basic expenses in your rainy day fund. If you don't already have a fund in place, though, start small and aim for one month's worth of expenses and build from there. Automating your savings, even if it's just $15 per paycheck, can help you make consistent progress.

Learn more: Tips to Boost Your Emergency Fund

2. Cut Back on Nonessential Spending

Review your current spending and identify areas you can trim, even if only temporarily. Subscription services, takeout, impulse purchases and entertainment are good starting points.

Reducing expenses now allows you to redirect that money into savings or debt repayment. It also helps ease the transition into a leaner budget if your income suddenly drops.

Learn more: Ways to Make Your Money Go Further

3. Pay Down High-Interest Debt

If you're carrying balances on high-interest credit cards or loans, try to pay them down while you still have a steady income. Reducing debt lowers your monthly financial obligations and gives you more breathing room in the event of a layoff.

Depending on your situation and your general preferences, you may choose to use an accelerated repayment strategy, such as the debt snowball or avalanche method. Alternatively, you might consider debt consolidation or even a debt management plan.

Learn more: What's the Best Way to Pay Off Debt?

4. Create a Basic Budget

A clear budget can help you take control of your finances before and after a layoff. Start by listing your essential expenses—housing, food, insurance and transportation—and subtracting that from your current income. Then, take a look at your discretionary spending over the past few months to get a sense of how much you can afford to spend.

Then, consider what this would look like with reduced or no income. Knowing your baseline needs will help you make smarter choices about where to cut back and how much you need in savings.

Learn more: Budgeting Needs vs. Wants

5. Research Unemployment Benefits

Unemployment benefits can provide temporary financial relief while you search for a new job. However, eligibility and benefit amounts vary by state, so it's important to familiarize yourself with your state's unemployment process, requirements and how long benefits last.

Knowing this in advance can help you act quickly if you lose your job. It also ensures you understand what documentation you'll need to apply.

Learn more: What to Do When Unemployment Benefits End

6. Use Your Job Perks

Take full advantage of any remaining job perks before your last day. That might include using up your flexible spending account funds, scheduling covered medical or dental appointments, cashing in unused vacation time or downloading training resources you can use later.

Some employers also offer job placement assistance or resume help. Be sure to check with your employer's human resources department to see what's available.

7. Improve Your Credit Score

If a layoff happens, having good credit can make it easier to qualify for a personal loan or new credit card to help cover expenses temporarily. A higher credit score may also help you secure lower interest rates, which can make borrowing more affordable during a tough time.

Start by checking your Experian credit report and FICO^® Score^Θ for free through your Experian account. You'll get personalized insights on what's affecting your score, plus tips on how to improve it. Even small changes, such as paying down credit card balances or avoiding new debt, can help improve your score over time.

Learn more: What Affects Your Credit Scores?

8. Update Your Resume and Start Networking

While not strictly financial, preparing your resume and reconnecting with professional contacts can reduce the time you're out of work—and, in turn, minimize the financial hit. Update your LinkedIn profile, connect with mentors or former coworkers and keep your eyes open for job leads.

Even if a layoff doesn't happen, you'll be in a stronger position to explore new opportunities.

Frequently Asked Questions

The Bottom Line

No one wants to think about getting laid off, but preparing now can make a huge difference if it happens. Taking steps to build savings, cut expenses and understand your options gives you a financial cushion and some peace of mind.

To get started, consider signing up for a free Experian account to monitor your credit, track your debt and find personalized tips to improve your credit health.