Almost every day there is an announcement of another corporate layoff. Thousands of jobs are being cut each month. This has been going on for well more than 10 years, with no clear end in sight. The thought of not being able to pay for basic necessities such as food, shelter and clothing has caused many a sleepless night for those whose personal economy has been affected by the loss of a job.
As a corporate executive, one of the hardest tasks I ever had was announcing the layoff of members of my organization. For many of my associates, layoff announcements came without much advance warning. They had little time to be emotionally, professionally and financially prepared. After the announcements, I spent a lot of time helping them develop a plan for what was next.
Why so many layoffs?
The recent economic downturn has resulted in lower revenue for many companies, which then preserve profits by shedding costs. Companies may be able to increase revenues by doing more advertising or hiring more salespeople, but these actions are often expensive. Bringing new products to market may increase sales, but product introductions can take months or years. All of these actions often do not yield a return for months. Unfortunately, however, eliminating jobs has an immediate impact on the bottom line.
In addition, many companies are shipping jobs offshore, where labor rates are only a fraction of the wages paid for unionized and salaried employees in the United States. The business cases supporting this move are tough to dispute. Offshore functions affect U.S.-based workers and managers alike. When companies agree to have specialty firms handle corporate functions like billing or customer service, they no longer need the resources that perform these functions in-house. Increased use of technology has eliminated the need for the people who used to perform certain functions. If you just think of automated answering systems, you can see how several administrative and management jobs are no longer needed.
How to prepare?
So, how can you prepare if you suspect that a pink slip may be on its way to your address? One great way is to build a substantial financial reserve. Advisors suggest having three to six of expenses in an easy-access account, but I’d suggest six to 12 months’ worth, because job searches often take longer than expected and funds may run out before you secure your next position.
Before a job loss occurs, start downshifting your expenses. Try making your morning brew at home and taking your lunch to work. Save a bundle, and save the savings for an immediate boost to your reserve. Pay cash for all essentials and go on a nonessential spending diet for 30 to 90 days. You can save substantial amounts of money in just three short months.
Before you have to, start investigating options for rolling over your company-sponsored 401(k) and see a financial advisor to help you make the right decision. And while you’re having that conversation with an advisor, ask about 72T provisions. If you lose your primary source of income, you will want to know about accessing long-term savings if you absolutely have no other option.
The financial impact of a layoff can be substantial, but having a plan and building a reserve puts you in control of your life. Build a reserve before it is needed and you will be able to thrive while searching for that next opportunity.
Patricia Thomas, CEO of THOMAS Coaching Co. Inc. (www.thomascoaching.com), is a management coach and trainer and host of weekend retreats for professionals. She may be reached at email@example.com, or 718-898-1025.