What happens when you suddenly lose your job? You may think about this infrequently, especially if you are in a stable position that allows you to remain pretty in demand on an ongoing basis. Yet, it can happen to anyone. You could lose your job if the company shuts down but also because you become ill. You can now do a few things to help you prepare for this financially tricky event.
Reasons for a Loss of Income
How could you lose your income? Consider these relatively common scenarios for loss of income that can impact just about anyone.
Illness or incapacitation
A car accident, the onset of an illness, or a fall could make it impossible for you to go to work for an extended amount of time. You may have some sick leave to help cover these periods if your employer offers them, but that doesn’t provide a long-term solution. Disability insurance, by comparison, could offer some help.
Retrenchment
Retrenchment is a term that describes a situation in which your employer finds that your services are no longer necessary for a business reason. This could happen if they no longer require your services due to a change in the business. This often leads to layoff or termination, eliminating your pay.
Company folding
Companies are impacted by economic factors, owners who leave the industry, and many other factors over time. As that happens, it can become challenging for employees to find work. If your employer goes bankrupt or closes the company for any reason, it could happen suddenly and unexpectedly.
Sudden events
The pandemic in 2020 is the ideal example here of what could occur. A person may suddenly find themselves without a job or suffer a loss of working hours due to a dramatic and significant event. It may not be due to your fault, but when it occurs, it may leave you unable to meet your needs.
Budgeting for a Loss of Income
When you suddenly lose income, you may be scrambling to find a way to continue to pay your bills and meet your needs. However, if you take the time to create a budget that allows you to plan for such instances, you can alleviate some of that risk and earn peace of mind.
- Create a basic budget that clarifies what your minimum needs are for shelter, feeding your family, keeping your utilities on, and making required payments.
- Work to determine what you are spending money on that you can eliminate. Put those dollars into a savings account to help you build up emergency funding.
- Work to reduce your debt. By paying down your debt, you could free up some credit to use later in a situation where you need to borrow to meet your ongoing costs.
Make sure that your budget includes a line for planning for the unexpected. An emergency fund that allows you to have cash on hand for 3 to 6 months of your salary can provide you with financial peace of mind should an event like this happen.
Protecting Against Loss of Income
While you should have a plan for overcoming these types of events when they happen, also work to prevent them from leaving you unable to meet your financial goals. There are a few ways you can do this.
- Improve your skills and education. You can become more valuable in the industry and with your company if you consistently look to improve what you do and how you do it.
- Invest in income-generating investments. Work to put money into investments that can help to become a source of income for you over time. That could include real estate, a new business venture, or risk-tolerant investment strategies.
- Make sure you have a retirement account so that if the company closes down, you have some funds to help you if you decide not to go back to work.
- Put in place disability insurance that can help cover your costs should you become unable to work for an extended amount of time due to your health or an injury.
Taking these steps could help you plan to avoid the financial impact that a loss of income could create for you. Most people will need to find a new income source, but having these stop-gap measures in place right now can provide the best short-term solution.