The technology world is a dynamic landscape of innovation and progress, offering countless opportunities for growth and success. However, even in this fast-paced industry, the possibility of unexpected changes looms. Tech professionals are familiar with the rapid shifts that can occur, from company restructurings to market downturns, which can lead to job instability.
The best way to face these uncertainties is to equip yourself with the tools and strategies you need to face them head-on. In this blog post, we’ll discuss practical strategies to prepare for a potential layoff in the tech sector financially.
Assessing the Risk and Creating a Plan
While the tech sector can be turbulent, a step in your preparation process should still be assessing the risk of a layoff from your job. You can do this by monitoring your company’s financial health and performance. Look for signs of struggle like declining profits, significant management changes, product issues, project delays or cancellations, etc., which could indicate potential instability.
In addition, it could also help to understand the broader trends in your industry. For example, if the tech industry is experiencing downturns or layoffs, your company and position could be vulnerable, too.
Once you have a pulse on what’s happening in your industry, it’s time to create a contingency plan.
Building a Contingency Plan
A contingency plan is like a safety net that provides you with a sense of security and control in the face of uncertainties. They’re not meant to cause unnecessary worry but to empower you with the tools and knowledge to face potential life changes and challenges confidently.
Each individual’s contingency plan will differ based on their specific needs, but a well-structured contingency plan should cover your personal and financial situation.
Let’s go through a few universally helpful things to include.
As a general guideline, an emergency fund should cover at least three to six months’ worth of your essential expenses. This provides you with a substantial safety net to help you weather unexpected life events.
Each individual has different essential expenses, so how do you figure out what you need?
Start by listing out your essential expenses, which likely include:
- Rent or mortgage payment
- Insurance premiums
- Gas or transportation
Once you know your essential expenses, you can start to chip away at adding to your emergency fund. Don’t get overwhelmed and feel you need to fund your emergency fund all at once. It’s okay to take some time to increase your emergency fund amount gradually. Just ensure it’s high on your savings priority list.
Exploring practical ways to save money is another way to help your emergency fund go further. This could include cutting unnecessary expenses and increasing income through side hustles. Assess your current budget to identify areas where you can cut back, and research potential side gigs or freelance opportunities to generate additional income.
Reducing Debt and Managing Expenses
The average American citizen carries $90,460 in debt. So, if you’re like most people, you likely have some sort of financial debt. Tech employees, in particular, commonly have student loan debt, with 18% reporting owing $100,000 or more.
Unsurprisingly, carrying high-interest debt isn’t in your best financial interest, especially if you risk a layoff. To help ease the burden, create a plan to manage short-term debts like credit card balances or loans. For example, if you need to continue making monthly payments on a loan, include those funds in your emergency fund allocation so you don’t fall behind.
Whether or not you’re currently in debt, do your best to avoid it. You can create a budget to track and control your expenses, ensuring you live within your means. You might rely on credit cards, loans, or borrowing from friends or family to cover emergencies without an emergency fund. This leads to further debt accumulation and interest payments, significantly impacting your financial health.
Medical costs can be significant, especially if you or your family require ongoing treatments, medications, or check-ups. Without employer-sponsored insurance, you’ll have to cover these costs alone. This is why planning for health insurance coverage is essential if your employer provides your current coverage.
There are a few options for continuity of coverage in case you lose your employer-sponsored health insurance:
- COBRA Coverage: If your former employer offers COBRA, you may be able to continue their coverage for a limited period. However, you’ll be responsible for paying the entire premium plus administrative fees. So, this coverage can get pretty spendy quickly, depending on your coverage.
- ACA Coverage: If you live in the United States, the Affordable Care Act provides options for obtaining health insurance outside of employer-sponsored plans.
- Marketplace Plans: Many states have healthcare marketplaces where you can purchase individual or family insurance plans.
We briefly covered why COBRA can be expensive, but you must also budget for ACA or Marketplace coverage. Research the available coverage options, calculate the costs, compare different plans, understand the enrollment periods, etc. Use this information to budget for medical expenses in your emergency fund, including any deductibles, copays, or premiums.
Other Employee Benefits
Tech employees have access to some unique benefits. With that, it’s critical that you know what to do with them in case of a layoff.
- Restricted Stock Units (RSUs)
- Vesting status: If you’ve already vested, you typically get to keep your shares even after you depart the company. If they’re unvested, you may have to forfeit them upon departure.
- Tax implications: Know the vesting schedule and tax treatment of your RSUs upon vesting and sale. Especially if you need to potentially sell RSUs to cover immediate financials needs or taxes.
- Sell or hold: Decide to hold, sell, or diversify your RSU based on your financial goals, market conditions, and risk tolerance.
- Employee Stock Purchase Plans (ESPPs)
- Stock purchase period: Know the purchase period and any discounts that are offered.
- Tax implications: Be aware of the tax consequences of selling ESPP shares, which can depend on how long you’ve held them.
- Sell or hold: Decide whether to sell, hold, or diversify your shares.
- Roll over or leave: Generally, you have the option to leave your account with your former employer, roll it into an Individual Retirement Account (IRA) or transfer it to your new employer’s plan. These all have different financial implications, so be sure to discuss this with your financial advisor.
- Diversify and review investments: Review your portfolio to ensure it aligns with your long-term financial goals and make any changes that are needed.
- Health Savings Accounts (HSAs)
- Ownership: HSAs are fully portable, so you can keep your account and continue to use the funds for qualified medical expenses – even if you’re no longer with your employer.
- New contributions: If you have a high deductible health plan (HDHP) with your new employer, you can continue to contribute to your HSA account.
- Investment options: Consider investment options for your HSA funds. This can provide growth over time if you don’t nee to use the funds immediately
Tech employees have several legal considerations to remember if they are laid off. While the legal landscape can differ based on your jurisdiction and employment contract, let’s discuss some common legal considerations for tech employees facing a layoff.
- Severance package and agreements: Review your contract or offer letter to understand any clauses related to severance pay, notice periods, or termination terms. If you’re offered one, negotiate the terms of your severance package. This could include things like compensation, continuation of benefits, and non-disparagement clauses.
- Final paycheck and PTO: Ensure you receive your last paycheck and see if it includes any unused vacation or paid time off.
- Unemployment benefits: Check your eligibility for unemployment benefits, which could provide temporary financial support while you search for a new job.
- Non-compete agreements: Understand their restrictions on your ability to work for competing companies or start your own business in the same industry.
- Intellectual property rights: Clarify your rights over any intellectual property you’ve created during your time with the employer. Ensure that you don’t inadvertently surrender them in a layoff situation.
- Confidentiality and non-disclosure agreements: Understand your ongoing obligations regarding confidential information and trade secrets.
- Non-solicitation clauses: Determine if you’re subject to non-solicitation clauses restricting you from recruiting former colleagues or clients to a new job or venture.
- Stock options: Understand vesting schedules and your timeline for exercising options.
Remember that employment laws can vary significantly depending on where you live, so it’s critical to understand your rights and responsibilities during a layoff.
Leaning On Your Support System
While financial preparedness is undeniably essential, remember that you also have the support of those around you. Don’t underestimate the significance of leaning on your support system for emotional support in times of change and challenge. Friends, family, mentors, and colleagues can provide support that no emergency fund could replicate.
In certain situations, there can be opportunities to return to a company in the future if/when the economic situation improves. So, if you enjoyed the work you did and the environment, stay in touch!
No matter what, don’t get down on yourself or take a lay off personally. Think of it as an opportunity to pivot your career, leap-frog to a better position, or find an organization that’s a better cultural fit.
As you navigate the exciting and unpredictable landscape of the tech industry, remember that preparation, resourcefulness, and a positive attitude can propel you through any challenge that comes your way.