How to Prepare Financially for a Layoff

Between sweeping tariffs and federal budget cuts, many Americans are worried that layoffs are right around the corner.

But Canada isn’t immune either. In a recent survey from KPMG in Canada, more than a quarter of business leaders said they’ll start cutting jobs if trade tensions continue.

If economic uncertainty makes you nervous, you don’t have to panic! You can take steps right now to help weather the storm.

Let’s look at how to prepare for a layoff, what to do if you lose your job, and how to stay positive if the worst happens.

How to layoff-proof your budget

You don’t have to wait and worry about what to do when you lose your job. Below are a few ways to start preparing now.

1. Build your emergency fund

Everyone should have an emergency fund — even if you think your job is 100% safe.

Not only can it help cover unexpected expenses, such as medical bills or a car repair, but if you lose your income, it could become a lifeline to pay your bills while you look for a new job.

Start by saving at least three months’ worth of essential living expenses (groceries, rent, utilities, etc.). However, if you have a mortgage or kids, aim to save at least six months.

Pro tip: Park your emergency fund in a high-yield savings account where you can access your money quickly and earn a better interest rate. You can even set up automatic transfers from your paycheck to ensure you are paying yourself first.

2. Build a bare-bones budget

Don’t wait until after you’re laid off to create a monthly budget — in that situation, it can be difficult to make rational decisions about what to cut.

If you’ve already created a “worst-case scenario” budget, staying calm during a crisis will be much easier.

To make a bare-bones budget, write down all the expenses you would have to pay to get by, such as your mortgage, utilities, and insurance. Then, add them to see how much money you need each month to keep the lights on.

Lunch Money makes this process easy by letting you sync all your financial accounts and automatically categorizing your expenses. With everything organized in one place, you can quickly see which expenses are necessary and which ones you can cut.

3. Track your spending

Budgeting is an ongoing process, so you’ll want to monitor your expenses throughout the month to stay on track.

Knowing where each dollar goes can help you avoid overspending and make the most of every paycheck (a zero-based budget is perfect for this!). It can also show areas where you could cut back, so you’ll know how to prepare for a layoff.

Lunch Money tracks your transactions automatically, so you won’t have to sort through receipts or manually log every coffee run.

You can also set limits on different spending categories and track your progress throughout the month. This makes it super easy to stay in control of your budget, even during uncertain times.

4. Reduce non-essential expenses

If you think layoffs are coming soon, start cutting your non-essential spending now.

Not only will it help you save more, but it might also make the transition easier if you lose your source of income. Your lifestyle won’t change dramatically if you’ve already cut out most of your frivolous spending.

Entertainment, dining out, and subscriptions are some of the best places to start trimming. These budget categories tend to be the primary culprits for discretionary spending.

5. Pick up a side hustle

Sometimes, you can only cut your expenses so far. If you’ve already trimmed your budget and still find it hard to make ends meet, you might want to focus on earning more.

Here are a few ways to bring in extra income:

• Pick up more hours at work
• Apply for a part-time job
• Drive for Uber or Lyft
• Sell stuff on eBay, Poshmark, or Facebook Marketplace

The extra cash could help you build your emergency fund faster. Plus, if you do get laid off, you’ll have another stream of income to fall back on.

6. Consolidate debt

If you’re carrying high-interest debt, now’s the time to get ahead of it, especially if you’re thinking about how to prepare for a layoff.

One option is to take out a loan to consolidate multiple debts into one payment (ideally at a lower rate). This can make your debt more manageable and help you pay it down faster.

You could also consider a balance transfer credit card, many of which offer promotional 0% APR on balance transfers for 12 to 18 months. Transferring your balances could give you some breathing room to pay off what you owe without accumulating more interest.

7. Apply for credit (with caution)

Let’s be clear: high-interest debt should always be a last resort.

But if you don’t have an emergency fund and layoffs seem likely, it may be wise to apply for credit now while you’re still employed. Lenders are far less likely to extend credit once you’ve lost your income, and it could provide an extra cushion if you need it.

With that said, applying for credit isn’t a substitute for saving; focus on building your emergency fund and trimming your budget first. Credit should only be used if absolutely necessary, and you have a plan to pay it back.

What to do if you lose your job

Knowing how to handle a layoff beforehand could help you keep a level head when it happens. If you do get laid off, here’s what to do when you lose your job:

1. File for unemployment: Don’t wait — apply for unemployment benefits immediately so you can start receiving payments as soon as possible.

2. Review your severance package: If you receive severance, read the terms carefully. Consider having a legal professional look it over to ensure accuracy and fairness.

3. Cut your budget: Shift to your bare bones budget. You can also look into frugal living tips, like negotiating bills or embracing DIY.

4. Tap into emergency savings: Use your emergency fund to cover essentials. Avoid relying on credit unless necessary.

5. Evaluate your healthcare options: Look into your spouse’s plan (if possible), Medicaid, or the ACA marketplace to prevent a lapse in coverage.

6. Keep up your side hustle: If you already have a side gig, keep at it so you can earn extra income while you search for your next job. Just make sure you know how to budget for irregular incomes.

How to stay positive during layoffs

Losing your job can take a serious toll on your mental health. Many people experience depression and anxiety, which can make it challenging to stay motivated and look for new opportunities.

When thinking about preparing for a layoff, it’s just as important to plan for your mindset as it is for your money. These tips could help you stay grounded if you lose your income:

• Be kind to yourself: It’s normal to feel guilt and self-doubt after getting laid off, even though it wasn’t your fault. Remember that layoffs are a business decision, not a reflection of your worth or abilities.

• Take care of your health: Although it may feel challenging, try to exercise, eat nutritious meals, and get enough sleep. Focusing on your physical health might improve your mood and energy level.

• Celebrate small wins: Remember that even the baby steps are still progress, whether updating your resume or applying for a job. Give yourself credit for moving forward.

• Stay connected: Reach out to family members, friends, and peers. Talking things through may help you feel better, and those connections could lead to new opportunities.

• Consider therapy: Counseling can help you process the emotional impact of a layoff and set new goals to keep you motivated. If money is tight, consider low-cost options in your community or online therapy services.

Bottom line: How to prepare for a layoff

With so much economic uncertainty, it’s no surprise that many people are worried about the future. If you’re wondering how to prepare for a layoff, there are plenty of practical steps you can take right now to take control of your finances.

Start by building an emergency fund, creating a bare-bones budget, and cutting non-essential spending. These actions will help you stay afloat and prevent stress if your income takes a hit.

And, if you do lose your job, don’t neglect your physical and mental well-being. Taking small steps each day can help you move forward.

Remember: When one door closes, another opens. New opportunities could be just around the corner.