Could Your Finances Carry You Through a Longer Job Search?

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Hello Reader,

It’s Bola here.

I came across some recent data about how people are feeling about the job market, and it made me think about a question that I don't believe we ask ourselves often enough when our jobs are going well:

If you unexpectedly lost your job, how long could your finances carry you while you looked for another one?

But recent data shows that people are becoming less confident about how easy it would be to find another job if they needed one.

According to a recent Survey of Consumer Expectations from the Federal Reserve Bank of New York, people estimated a 44.4% chance that unemployment would be higher a year from now, the highest reading since April 2020. At the same time, confidence in being able to find another job after losing one declined.

That doesn't mean a recession is coming or that you should expect to lose your job. But it does bring up something I've talked about for years at Clever Girl Finance: the best time to prepare for a financial emergency is before you're in the middle of one.

And job loss is one of those emergencies that can become significantly harder financially when the job search takes longer than you expected.

What if six weeks became six months?

When we talk about emergency savings, it's easy to think about the unexpected car repair, medical bill, or home expense. But one of the biggest reasons to build an emergency fund is to give yourself time and options if your income suddenly changes.

Imagine that you lost your job tomorrow and expected to find another position within six weeks. You might be able to cover that period with your final paycheck, some savings, unemployment benefits, or another source of income.

But what happens if six weeks becomes three months? Or six months?

Your rent or mortgage is still due, you still need groceries, your car payment doesn't disappear... And neither do your insurance premiums, utilities, minimum debt payments, childcare costs, or all the other expenses that make up your life.

So let's talk about what you can be doing now.

Start with your emergency fund

The standard recommendation of saving three to six months of essential expenses is a useful goal but I also know that building that amount of money doesn't happen overnight.

If you don't yet have a lot saved, don't allow a big number to discourage you from starting at all. Your first goal might be $500 or $1,000. From there, you can work toward one month of essential expenses, then two, then three.

The important thing is to build the habit and keep going.

And if you already have an emergency fund, this may be a good time to check whether the amount still makes sense for your life. Your housing costs may have increased, your family may have grown, or your monthly expenses may simply look very different from when you originally set your savings target.

I share how I've built mine here.

Know what your bare bones budget looks like

I've talk about bare bones budgets often because they're incredibly useful when your financial circumstances change.

A bare-bones budget isn't how you have to live forever. It's simply the version of your budget that focuses on the expenses you absolutely need to cover while temporarily reducing or eliminating the things you can live without.

Start with housing, food, utilities, transportation, insurance, healthcare, childcare if applicable and your required debt payments. Then look at everything else and decide what could temporarily be reduced, paused or eliminated if your income disappeared.

Doing this exercise before you need it can be incredibly helpful because you're making those decisions calmly rather than trying to figure everything out while also dealing with the emotional stress of losing your job.

Understand what would happen to your benefits

One thing that can easily get overlooked when we're thinking about job loss is that a paycheck isn't always the only thing we're losing.

If your health insurance is tied to your employer, it's important to find out what your options would be if your employment ended. Depending on your situation, that could include COBRA coverage, coverage through a spouse or partner's employer, or a plan through the Health Insurance Marketplace.

It's also worth understanding how unemployment benefits work in your state before you ever need them. Eligibility and benefit amounts vary and unemployment benefits are unlikely to completely replace your previous paycheck, so they should be part of your backup plan rather than the entire plan.

Think about what you would pause

If you lost your job, you might temporarily need to change some of your financial priorities, and that doesn't mean you're abandoning your goals.

You may decide to pause extra debt payments and make only the required payments for a period of time.

You might reduce investing outside of your workplace retirement plan, pause travel savings, or stop contributing to other sinking funds while you preserve cash for essential expenses.

If you're dealing with an income loss, protecting your cash and keeping your essential expenses covered becomes the priority. You can return to your other financial goals when your income stabilizes.

Don't wait until a layoff to update your career plan

Keep your resume updated and maintain relationships with people in your industry. Additonally, continue developing skills that make you valuable in the job market and pay attention to what's happening in your field, particularly if your industry or employer is going through significant changes.

You don't need to spend every day preparing to lose your job, but you also don't want the first day after a layoff to be the first time in five years that you open your resume.

And if you've been thinking about creating an additional income stream, this is another reason it can be useful. A side hustle or small business may not replace your salary, but even a few hundred dollars coming in each month can help stretch your savings during a longer job search.

What can you put in place today?

None of us knows exactly what the job market will look like six months or a year from now, and I don't think making financial decisions based on fear is helpful.

Focus on making sure that one unexpected change in your income doesn't immediately become a financial crisis.

So instead of trying to predict whether you'll ever experience a layoff, start putting things in place for your financial peace of mind today.

Maybe it's a larger emergency fund. Maybe it's knowing exactly what you would cut from your budget. Maybe it's paying down a credit card balance, understanding your health insurance options, updating your resume or finally creating that additional income stream you've been thinking about.

You don't have to do all of those things at once. Choose the one that would make you feel more financially prepared and start there.

Because the purpose of preparing isn't to live your life expecting something bad to happen. It's to give yourself more options if something unexpected does.

If you want help strengthening your finances, Clever Girl Finance has 30+ completely free courses, 40+ worksheets, mentor calls, and a supportive community to help you build your emergency savings, create a budget, pay down debt, increase your income, and continue building wealth.

Check out our free courses and community today.