The current economic climate has led to a wave of layoffs across the United States. Here in the Bay Area, we have seen thousands of layoffs from many firms including (% of workforce) – Meta, Twitter, Salesforce (10%), Splunk (4%), Coinbase (20%), DocuSign (10%), eBay (4%), Google (6%), Zoom (15%) and PayPal (7%) – just to name a few. Job cuts were up 15% in March 2023.
If you are in the unfortunate position of being laid off, here are some financial tips that may help.
Emergency fund
If you haven’t been laid off yet, your focus should be on shifting money to a savings account to build up an emergency fund. We usually recommend three to six months of expenses. That can be achieved by cutting inessential expenses and maintaining only fixed expenses, such as utilities, mortgage or rent payments. If there are any costs or large expenses upcoming, it may be time to delay those.
If you need to boost your emergency fund in a short time, you may need to review the amount of money you’re contributing to long-term investments like retirement plans. Instead of needing that money in 30 years, you may need it in 30 days.
Manage your debt
For clients that need extra capital, this might be the time to consider getting a loan (like a HELOC) while you still have a regular income to report in the application.
Ideally, your emergency fund will be robust enough as you should avoid taking on additional debt. If you haven’t been laid off yet, you should evaluate if it’s possible to pay off current debt, even if it’s just part of it.
You want to make sure that you still maintain ample cash reserves so you can make payments toward rent, mortgage and other expenses during this time period.
Evaluate 401(k)s
It’s important to know the options for your 401(k)s or similar employer-sponsored retirement plans. Most plan participants can keep their retirement savings in the 401(k) after they separate from the company, but there can be plan-specific rules that would require a minimum dollar amount to stay in the plan past a certain period of time. Your options vary from remaining in the current plan, moving to the future employer’s or shifting to an IRA.
If you have taken out a loan from the retirement plan, you should know what the loan payoff options are if they no longer have payroll deductions going into the 401(k) when they are let go. Most plans demand repayment of the debt anywhere from 30 to 90 days after the layoff.
It’s important to understand the timeline and the options for moving a plan into an IRA to avoid the balance becoming a taxable distribution or getting a 10% penalty if the payment is not made on time.
A Certified Financial Planner® like those at Asti Financial Management can help you analyze your options and develop the best strategy for your unique situation.