While investors' eyes remain fixed on the Dow Jones and the Fed's interest rate hikes, American workers must heed the disturbing signals from the labor market.
As the US economy totters on the brink of a possible recession, employees must be ready for anything.
Many workers benefited from the critical labor shortage that followed the pandemic recovery, with low-wage workers enjoying perks traditionally reserved for managers, such as sign-on bonuses. Yet, in recent weeks, there are indications that the labor market could be cooling off, particularly in high-skill sectors like tech.
Data from the Labor Department shows unemployment claims in July reached their highest point this year at over 250,000 nationwide. This coincides with a string of high-profile layoffs in large companies as boardrooms brace for economic turbulence ahead.
Non-fungible token (NFT) exchange OpenSea let go of 20% of its staff, citing the possibility of a “prolonged downturn,” while fitness firm Tonal shed 35% of its workforce due to a deteriorating “macroeconomic climate and global supply chain challenges.” Other companies in the housing and auto industries are also letting workers go.
An increasing number of workers are also seeking the security of their former workplace. This “boomerang employee” trend could signal that the carefree confidence that characterized the Great Resignation is fading.
Sharp economic downturns hit all industries, making it prudent for employees to be prepared. There are several steps workers can take to ensure they are ready to face redundancy.
It's an Emergency
Emergency funds are primarily for dealing with a sudden loss of income. Yet workers who have grown accustomed to a regular paycheck may not be cognizant of precisely the amount they'll need nor how they should manage it.
“Those who are preparing for a future layoff should consider increasing their emergency fund to at least three to six months' worth of expenses,” Danielle Miura, Certified Financial Planner and founder of Spark Financials, told us.
“If you work in a specialized industry with limited positions, consider having a 6-month emergency fund,” she added.
This will require some forward budgeting.
“Take a close look at your expenses, income, and debt, and try to figure out how much savings you need,” Jason Berube, Founder of Cornerstone Wealth Consulting Services, explained.
“Take your monthly cost of living, multiply it by 3-6 and stick it in a savings account,” he said.
This doesn't include repaying debts, however.
“If you have any type of debt — whether it's for student loans, credit cards, an automobile, or a mortgage — you'll want to figure out a plan for making payments once you're unemployed,” recommended Berube.
Before heading to the exit, employees will need to negotiate the terms of their termination. It is in their interest to leave with optimal conditions, which experts say should include reasonable severance pay.
“Check to see if your employer offers a severance package,” Miura suggested.
“Employers are not obligated to provide a policy for severance pay; however, if they have a policy, it will be helpful with planning your budget,” Miura added.
This process may take time, and rushing it is not advisable.
“Although you may want to sign your paperwork immediately, it is usually best to wait at least a week before signing anything. Take your time and review all of the documents carefully. If you are uncertain about the conditions of the severance package, get an expert opinion from a lawyer,” she said.
“Before negotiating, understand what your ideal severance package would look like. If your employer is not willing to negotiate, try to compromise other benefits like health benefits or outplacement services.”
“Remind your employer how they benefited from your hard work and remind them the severance package is small compared to what you contributed to the company,” she added.
Get (Financial) Help
Government support can see the newly unemployed through the tough times. It's best not to delay applying for assistance.
“Newly laid-off individuals should apply for unemployment benefits as soon as possible since unemployment benefits may take a couple of weeks to process. File your forms correctly so your benefits don't get delayed,” Miura recommended.
While unemployment cheques will sustain living expenses, advisors warn against spending the total every two weeks.
“The best thing to do is to save what you can while those benefits are coming in,” said Berube.
“If you've set up direct deposit for your benefits, for instance, consider having some of those benefits transferred automatically to a savings account. The more money you can add to savings now, the easier it will be to make the transition away from unemployment benefits down the line,” he added.
Plan for the Plan
Employees have a few options regarding their 401(k) plan.
“When you quit your position, you can leave your account that way it is, roll it over to an IRA, roll over to a new 401(k), or take a lumpsum distribution,” Miura said.
She also recommends that workers tie up any loose ends.
“Before leaving your current position, make sure that your 401(k) doesn't have any pending obligations,” she said.
“If you took out a loan, fully pay it off so your loan isn't considered an early withdrawal,” she added.
Losing one's job often comes as a blow. Yet employees who make the most of this situation may benefit from a break from work and use it as a transitionary period into another career phase.
“Now that you have more free time on your hands, find a hobby that interests you. Do the things on your to-do list that you have been procrastinating, like house chores or taking a vacation,” Miura advised.
Those keen to jump back into a new position could devote their efforts to skilling up or marketing themselves to prospective employers.
“Take the time to build your skills by getting a certificate or taking an online class, and create a website to help display your achievements and interests. Write blog articles on your website that will educate your new employers about who you are and what you can bring to the table,” Miura said.
For those with an entrepreneurial bent, it may be the ideal time to stop moonlighting and do a side hustle during the day.
“Side hustling is an easier way to start generating some income when you're not working a regular 9 to 5,” said Berube.
“Experimenting with a few different side hustle ideas could ultimately help you find the right one for you and could lead to a new career,” he added.
Adverse economic conditions impact everyone. Workers must acknowledge that they would have likely stayed on at their job during normal times. Keeping perspective enables the newly unemployed to maintain self-esteem and to better cope with the stress of being out of a job. Those that stay well-connected to their personal and professional network may draw on their community for moral support and find themselves soon moving on.
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This article was produced and syndicated by Wealth of Geeks.
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