Managing Finances When Recession Leads to Layoffs

If you read this month’s NEST Edge newsletter, you’ll know that an economic slowdown is underway. Sean has been preparing our portfolios for it for months. At NEST, we’re in a good position to survive and thrive in this contraction, whether it becomes a recession or not. Are you?

When the economy goes into a contraction, jobs are one of the first casualties. And when contractions turn into recessions, it gets even worse. Right now, our economy is moving into a period of contraction after peak growth. During economic expansions, money is flying, and people are buying. In order to meet the increased demands of these bountiful times, jobs are created, and companies hire to increase their production, making low unemployment one of the hallmarks of an expansion. It feels like we’re on an upward trajectory that will never end.

But it does end, and we once again find ourselves in the contraction stage of the economic cycle. Depending on the nature of the recession, some sectors, such as retail, manufacturing, and leisure, are more vulnerable than others. But none are completely resistant to downsizing.

If signs point to a round of layoffs coming in your sector, it’s time to start thinking about what you can do to prepare yourself and your finances for the possibility.

Why Companies Have Layoffs

It’s simple — when business is booming, companies need more workers to meet consumer demand. But when the first signs of contraction come—stocks drop, sales slow, inflation soars—businesses act quickly. Time to trim the fat.

Layoffs are an efficient way to reduce labor costs and protect profitability when sales slow down. Unfortunately, it means a tougher job market for displaced workers. Preparation is key.

How You Can Prepare for Layoffs

Start Preparing Yesterday

If you didn’t start months ago, the next best time is now. Make the following steps your second job today.

Reduce Cash Burn

Reassess your budget and slash unnecessary spending. Cut subscriptions, entertainment, eating out, and travel expenses. Aim to cut your cash outflow by at least 10%.

Extend Your Runway

Instead of the usual 3-6 months of living expenses saved, aim for 6-12 months. In tough job markets, it may take longer to find employment. Build your emergency fund now.

Cash on Hand

Your emergency savings should be liquid. That means accessible cash—not funds tied up in retirement accounts or volatile investments. You’ll need it easily available without penalties.

Meet with Your Financial Advisor

Update your financial plan to reflect your new reality. Discuss how to adjust your savings, investments, and debt strategy if layoffs hit. Talk about any 401k rollovers.

Move Your 401k

If you lose your job, you don't have to leave your 401k with your old employer. Consider moving it into an IRA or Roth IRA to unlock more investment options and better control your portfolio.

Relax and Start Looking

Preparation is everything. Once your finances are ready, you can focus your energy on finding a new opportunity rather than stressing over bills.

Why It Matters

We can’t control layoffs, but we can control how ready we are. If you prepare today, you’ll be in a stronger, more confident position to handle whatever comes.

If you’d like to ensure that you’re in the best position to make it through this economic contraction, whether you’re laid off or not, schedule a no-obligation call with us. In our nearly 30 years of experience in personal finance and investment management, we’ve helped clients weather every kind of economic storm.

If you’re an Austinite, a Texan, or just plain interested in improving your financial situation, reach out to us at info@nestfinancial.net. We love working with individuals, families, and entrepreneurs, helping them realize their financial goals and thrive, even during uncertain times.

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DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.