73% of Layoff Victims Struggle Financially Afterward. Here's How to Avoid That

There's one key step that could help you avoid financial devastation after losing a job.

Today's labor market is pretty strong. The national jobless rate just reached a 54-year low, and a lot of companies are hiring.

But that doesn't mean workers are immune to layoffs. We've already seen a lot of big companies announce plans to downsize early this year. And while most of that activity has stemmed from the tech sector, it hasn't been limited to it, either.

Even if you're a hard worker with a great reputation at your company, it won't necessarily stop you from losing your job if your employer is forced to make cuts. The same holds true if you've been with your company for many years -- seniority won't always serve as a means of protection if downsizing staff becomes necessary.

In a 2022 BizReport survey, 73% of laid-off workers struggled financially after the fact. If you want to avoid that fate, there's one key step you can take to prepare.

Unemployment and severance may not cut it

When you lose a job through no fault of your own, you're generally entitled to unemployment benefits from your state. But those may not do a very good job of replacing your missing income. In many cases, you won't even collect so much as half your paycheck, depending on your state's maximum weekly benefit.

What's more, not every company that downsizes offers laid-off workers severance pay. And among those that do, that pay might only amount to a few weeks' worth of salary. So you can't assume that unemployment benefits and severance will pay you enough to cover your bills the entire time you're looking for work.

That's why it's so important to build yourself a solid emergency fund. At a minimum, you should aim to have enough money in your savings account to cover three full months of bills, as it could easily take that long to find a job. But depending on the nature of your work and industry, you may want to aim for more savings than that.

Let's say you work in a smaller industry where jobs aren't always abundant. Or let's say you have a specialized role that not every company needs to fill. In that situation, you may want to sock away even more money for a layoff, because it might take you longer to find a job.

In fact, in the wake of the pandemic, some financial experts have been encouraging workers to save enough to cover up to a year's worth of bills. That might sound like a lot of money to tuck away in the bank, but you never know when you might struggle to find work after losing a job. So having extra savings buys you an opportunity to take your time looking without having to settle for any old job just to bring in a paycheck and avoid credit card debt.

Don't leave yourself financially vulnerable

It can be difficult to determine when a layoff might hit. But if you make a point to maintain a solid emergency fund, the idea of one may be less stressful. And you're apt to struggle a lot less financially if your job is actually taken away.