How to Navigate an Unexpected Job Loss

If you’ve been following the headlines, you’re likely aware of the mass layoffs taking place in the technology industry. And if you happen to work for a big tech company, industry cutbacks may impact you directly.

The combination of inflation, rising interest rates, and slowing economic growth has been particularly hard on big tech companies, which tend to rely on outside funding more than other industries. Consequently, 417 tech companies have laid off nearly 120,000 workers since the start of 2023, according to Layoffs.fyi.

Unfortunately, an unexpected job loss can set even the highest earners back financially. Whether you work in big tech or another industry, preparing for a possible financial setback can help you minimize the damage.

Meanwhile, if you’re one of the thousands of workers currently navigating a job loss, there are steps you can take to preserve your financial resources.

The following steps can help you successfully navigate an unexpected job loss:

Step #1: Scale Back Your Budget

As your income rises, it’s natural to adjust your lifestyle accordingly. For instance, you may eat more meals out, travel more often, or indulge in conveniences like a grocery delivery or cleaning service.

Most of us fall victim to lifestyle inflation as our careers advance. However, if you suffer an unexpected job loss, you may need to make some temporary concessions.

Scaling back your budget can help you cut spending in the near-term and extend the life of your emergency fund. For example, if you have $50,000 in emergency savings and typically spend $10,000 per month, cutting your spending by just 20% can extend your cash reserves by another month or more.

If you’re not sure how to scale back your budget, the following steps can help:

• Identify your current expenses and separate them into two categories—necessary and discretionary.
• Look for items within your discretionary spending list that you can eliminate, either temporarily or permanently. Examples may include weekly dinners out, subscription services, or gym memberships. Pause or cancel as many of these expenses as you can to reduce your spending after an unexpected job loss.
• If necessary, move on to non-discretionary expenses like mortgage and car payments, insurance, and groceries. Look for opportunities to negotiate lower rates, temporarily pause your payments, or substitute lower-cost alternatives until you’re back on your feet financially.

Whether or not you expect to lose your job, scaling back your budget can be a helpful exercise in understanding where your money goes each month. It may also give you peace of mind knowing you have options if your income suddenly declines.

Step #2: Calculate Your Safety Net After an Unexpected Job Loss

Based on your new budget, calculate how long your savings will last if you don’t replace your income immediately.

If your job was your sole source of income, the easiest way to calculate your safety net is to divide your current cash level by your monthly spending estimate. For example, $50,000 cash / $8,000 spending per month = 6.25 months.

If you’re a dual-income household or collect unemployment benefits, you may have a longer runway after an unexpected job loss. In some cases, you may not need to touch your emergency savings at all.

Ideally, you won’t deplete your cash reserves completely. However, if you think this may be a possibility, identify other potential sources of cash to help bridge the gap until your next venture. Examples may include brokerage accounts or a home equity line of credit.

Keep in mind early withdrawals from a 401(k) plan or individual retirement account (IRA) may result in taxes and other penalties. Try to avoid drawing on these funds unless you absolutely need to.

Step #3: Understand Your Options If You Have Non-Cash Compensation

Many employees in the technology industry earn a combination of cash and non-cash compensation like company stock options. If you’re a tech professional navigating an unexpected job loss, it helps to know what your options are.

Many employers offer a post-termination exercise (PTE) window during which ex-employees can exercise their stock options.

In most cases, this window stays open for 90 days. However, some employers offer PTE windows up to 10 years. Once the window closes, the options are rendered void.

If you have stock options, review your options agreement to see what the effective date of your options and PTE window are. Having this information on hand can help you avoid losing a potentially large piece of your total compensation after a job loss.

At the same time, you’ll need to decide if exercising your options make sense. Factors to consider include current stock price and market conditions, the company’s growth prospects, and whether there’s a secondary market for your shares.

You’ll also want to consider how the stock fits into your overall risk profile. A financial planner like SageMint Wealth that specializes in non-cash compensation plans can help you determine if exercising your stock options makes sense for you.

Step #4: Take Advantage of Near-Term Opportunities After an Unexpected Job Loss

Lastly, even an unexpected job loss can have its silver linings. If you lose your job, consider how you may be able to use it to your advantage.

For instance, you may be able to leverage certain tax planning strategies that make more sense during lower-income years. One example is a Roth conversion, which allows you to convert all or part of your traditional IRA funds to a Roth IRA regardless of your income. Since a Roth conversion is a taxable event, it’s often advantageous to do it when you’re in a lower tax bracket.

In addition, a job loss may allow you the space and time to recharge your batteries and plan your future. Instead of jumping into a new job immediately, consider viewing unemployment as an opportunity to take a sabbatical or mini retirement, which can be just as beneficial for your career as it is for your mental health.

SageMint Wealth Can Help You Prepare for and Navigate an Unexpected Job Loss

An unexpected job loss can be emotionally and financially devastating. But it doesn’t have to keep you from reaching your long-term financial goals.

A financial planner like SageMint Wealth can help you develop a long-term financial plan that seeks to protect your finances against unexpected setbacks. We can also help you navigate near-term challenges and opportunities, so you stay on track towards your financial goals.

SageMint Wealth is a Southern California-based wealth management firm for high-net-worth individuals, families, and business owners. We have a passion for supporting women, the LGBTQ+ community, and individuals in the technology space. If you’re a tech professional navigating a job loss or looking to secure your financial future, please contact us. We’d love to hear from you.