10 Ways Financial Planning Helps You Navigate a Layoff with Confidence

My wife got laid off for the first time in her 20+ year career. She got a call from her CEO on a Friday morning and received the news. It was purely a business decision, not connected to her performance, which probably sucks even more. If it was based on low self performance, at least you can accept accountability and know that some or all was within your control. But this was not the case. Company realignment, strategy shift, economic factors, etc. Things outside of your control.

In financial planning, I like to say “Control the controllables”. Focus on what we can control, put strategies around that and review it often. Life is stressful as it is, so why focus on things we can’t control?

My wife and I have been doing formal financial planning for a bit over 10 years now. I am big on the risk management part of financial planning (it is 1 of 7 parts that financial planning covers through my process). Cover our bases, so we are prepared for whatever comes our way. Being laid off is one of those situations. A big drop in income for an unknown duration of time that we don’t have full control over.

So, here are 10 ways our financial planning helps make this situation a lot easier, so we don’t need to panic and stress how we are going to pay our bills and live our life.

1. Knowing where our money goes month to month.

Financial planning helps you design and monitor a cash flow system. Instead of money just disappearing every month, we control where the cash flow goes by giving every dollar a job and purpose.

I like to split where the monthly income goes into three buckets:

• Savings/Investing – this is first because paying ourselves first is a priority for long-term financial prosperity.

• Fixed expenses – the items that must be paid every month, such as mortgage, car payment, utility bills, etc. This bucket is fairly stable month to month. If times get tough, we have limited options here, such as cutting streaming services that we pay every month. But the big ticket items like house and car payments, we can’t just stop paying without making drastic changes. Which is why it is always prudent not to over-commit a big part of your monthly income to the fixed expenses bucket. Proactive planning can analyze those big purchases and how they can impact your other goals before you commit.

• Variable expenses – the items that we have control over. We can spend as much or as little in this category. Items like groceries, shopping, dining out, entertainment, etc. We have flexibility in this bucket. If times get tough and we need to cut back, we can easily do so in this bucket.

2. Having an emergency fund.

This is your first line of defense when the world throws a curveball at you. Money that you can tap into when your income temporarily goes away. It is your peace of mind money. Typically, the financial advisory world recommends having 3-6 months of monthly living expenses as an emergency fund. So if you know your monthly expenses (item #1 above), you can calculate how much your emergency fund should be. While the 3-6 months is a great starting point, it needs to be personalized based on your specific situation. Here are some considerations:

• Dual-income family? Maybe 3-6 months makes sense.

• Single income family? You may want more than 6 months.

• Emergency fund that needs to fully cover your lifestyle without any cutbacks during a period of income loss? Get specific and decide how many months will give you peace of mind.

• Emergency fund that needs to fully cover your fixed expenses and 50% of your variable expenses? You may need a lower amount since you are OK sacrificing some lifestyle for the time being.

As you can see, there are many variables as to what makes you comfortable. There is no right or wrong here, and generic rules of thumb are not good enough. The main purpose of an emergency fund is to give you peace of mind. What “peace of mind” means is something that should be defined based on your financial goals, values and needs.

3. Having no unfavorable debt or at least having a plan to pay unfavorable debt off.

What’s unfavorable debt? That’s debt that is working against you and takes away from your financial peace of mind.

For example, high-interest credit card debt is working against you. 0% credit card debt on the other hand can be favorable debt when used strategically. I don’t subscribe to the idea of good debt vs bad debt. Whether debt is good or bad depends on the situation and how it is used.

Many financial gurus would say that a mortgage is a good debt, but I don’t fully agree with that. If you overextend yourself and get too big of a mortgage, that could create a lot of stress in your life. I wouldn’t call this “good” debt if it takes away from your financial flexibility.

Having no unfavorable debt gives you a lot of control if you get laid off. You don’t have high-interest creditors knocking at your door asking for their payment while you don’t have income coming in. Credit card debt, with a 20%+ interest rate will still keep accumulating regardless of whether you have a job or not. And if you don’t have the means to continue making payments towards it, it will only make a bad situation worse. $10,000 credit card debt at 20% is $2,000 a year in interest. Money that’s just gone. Given to the credit card company with zero benefit to your situation.

Having a plan to manage debt is crucial as part of a full financial plan.

4. Having money in a taxable brokerage account.

This is my favorite type of investment account. If you don’t have a taxable brokerage account, I would question your financial plan. I am yet to see a financial plan that doesn’t benefit from having a taxable brokerage account.

So, what is a taxable brokerage account?

- It is an investment account that you can open for free at many different investment firms, such as Fidelity, Vanguard, Schwab, E-Trade, etc. I use Schwab for my clients.

- It is an account where you can invest in many different types of investments, such as stocks, bonds, cash instruments, real estate, precious metals, crypto, etc.

What makes a taxable brokerage account so special?

• Access to your money.

  • Unlike retirement accounts such as 401Ks, IRAs, etc. in a taxable brokerage account your money is accessible whenever you want. Now, you do need to be mindful of tax consequences, but there are no penalties for taking money out earlier than allowed. It is available at any point.

• Preferential tax treatments.

  • If you know the rules and have a proactive strategy in place, you can benefit from the favorable tax treatments allowed in taxable brokerage accounts. (That’s the main reason why I love this account so much.)

• It complements your retirement accounts.

  • It allows you to have some control over your tax rates when utilized strategically with retirement accounts (401K, IRAs, etc). Tax loss harvesting, tax gain harvesting, selling specific tax lots, short-term vs long-term gains, etc. I can nerd out all day on this.

• Access to more instruments to hold your cash.

  • Item #2 above highlighted having a well-funded emergency fund. But that emergency fund shouldn’t just sit in plain old cash. You want to earn something. Otherwise, pure cash will just get eaten alive by inflation. If inflation is 3% and your cash is earning 0.01% like in most traditional savings accounts, you are losing money. Inflation eats into the purchasing power of your money. A brokerage account gives you access to money markets, ultra-short bonds, short-term treasury funds, etc. Ability to at least match inflation. Remember, the purpose of your emergency fund is not to beat the market. It is to be there when you need it, but you might as well earn something while the cash is sitting there.

A taxable brokerage account gives you a lot of flexibility. That’s its main advantage. Flexibility means options, control and choices.

5. Knowing where you stand financially.

The main benefit of ongoing financial planning is that you know where you stand at all times. Are you behind? Are you ahead? Are you on target? Are you going to be OK?

All important questions that ultimately will give you peace of mind. Even if you are financially behind, just the fact that you have financial awareness will give you control. You will know what action you need to take and why.

If you didn’t know you were behind and found out when you are 65, the day you retire, that would not be a good situation. I would rather know I am behind when I have enough time to do something about it.

For our personal situation, my wife and I hit Coast F.I.R.E. back in 2021. What the heck is Coast F.I.R.E?

F.I.R.E stands for Financially Independent, Retire Early.

Now, we are not fully financially independent just yet (at least not based on current lifestyle needs), nor do we want to retire early. But we want to have the OPTION to retire early should we choose to.

To be able to retire on your own terms, you need to be fully financially independent. Meaning, your investments plus any guaranteed forms of income, such as social security and pensions, will cover your lifestyle needs without needing a job.

Coast F.I.R.E is a variation of F.I.R.E. It means that we have enough money invested for retirement such that if we don’t contribute another penny, by earning a reasonable percent of investment returns, 6% in our case, we will have enough in our retirement funds to retire at the regular 65 years of age. That provides so much peace of mind. Just knowing that our traditional retirement is already taken care of. It gives us lots of options until 65 comes, many years in the future.

6. You don’t need to be in “freak out” mode.

Getting laid off sucks. There is no way around it. Especially when it is not your fault but just a pure business decision. You have done a great job, but due to things outside of your control such as uncertain economy, industry slowdown, company just not doing well, you got laid off.

You should take a few days to be mad about it. That is perfectly OK. Take a full week if you need to. Everyone is different and you need to deal with it in your own way. But hopefully, you won’t need to be in “freak out” mode due to financial reasons. Hopefully, you have done proactive financial planning. You have a full grasp on your financial situation, you have a well funded emergency fund, you understand your expenses, you know all the moving parts.

(Formal) Financial Planning is not easy. If it were, everyone would be doing it. Unfortunately, based on a survey from Schwab, only 36% of people have a formal written financial plan. I would like to see this higher. Congrats to the 36% of people who do formal financial planning!

While financial planning takes effort, it is worth it. When you have a full grasp on your money, you have control. You are proactively prepared for what life throws at you. And we all know that life will throw many challenging situations your way. It is what keeps life interesting!

Money, for better or worse, is often a big part of those challenging situations. So, when you have a full understanding of your financial situation and progress, you can then make better informed decisions. You are tackling those issues with a clear mindset. You are facing them from a place of power and confidence.

7. You can be more selective with your job search.

Being desperate to find a job is not a good situation. Taking any job that comes your way is a recipe for future regret. But when you don’t have full financial confidence, you may take the very next job that is available to you.

If you don’t have a job ASAP, how would the bills get paid? That’s another thing to stress about, in addition to searching for your next opportunity. Searching for a job is not easy. Resumes, cover letters, researching companies, networking, interviewing. It can feel like a full time job.

That’s why I am a huge proponent of proactive financial planning. Being ahead of the game. Always on top of your financial game. Knowing your financial goals and doing something about it, strategically and proactively.

8. Not able to find a job that pays the same as before and still being OK financially.

There is no guarantee that you will be able to find a job that pays you the same as before. That’s the reality of it. Nobody owes you anything. That’s why I think you are doing yourself a disservice when you get a bit too comfortable with your current job, thinking that you will make the same or more money forever. You have been working for the same company for a while, gotten a bunch of promotions, life is good. And then you get laid off.

You are now having a hard time finding a job with a similar income. Your lifestyle depends on that higher level of income. So now, you may be forced to make really tough choices. Downsizing, moving to a cheaper town, having to work longer till you can retire, etc. All unpleasant things. That’s why it is important to do financial planning proactively and not wait until a “better” time comes.

One of the most dangerous phrases in personal finance is “Once I make more income, I’ll get my finances in order”. That’s similar to waiting to get a six-pack before you start a workout regimen and a healthier diet. You just won’t get there. You’ve got to do the work on an ongoing basis. It is a lifestyle, not a one time event.

One of the fundamental concepts of finance is Compounding Interest. It can work for you or against you. And the less time you have, the less it can work in your favor and the higher price you need to pay to meet your financial goals. It is just how the math works.

9. Living within your means.

Technically, I should say “living below your means”, but just like the word budget, “living below your means” seems to carry a negative feeling. A feeling of restriction and scarcity, which I confirmed with my wife.

Now, living within your means doesn’t mean that as long as you don’t spend above your income, you are going to be OK. If you are spending your full income without saving and investing an appropriate amount for your goals, you won’t like the end result.

And thinking that just making more income will help you. If you make $1M a year, but spend the whole $1M, you are still broke. But somebody making $200K and spending $170K can invest the difference and build wealth and not be broke.

At the end of the day, no matter your income level, the “secret” to building wealth is based on what you keep of your income. What’s left over can then be used to save and invest to build wealth over time. This will lead to financial flexibility, peace of mind and eventually financial independence.

So how do you live within your means? By giving your dollars purpose and jobs. Create a cash flow system or a spending plan. See item #1 in this blog on how to break up your income and give your dollars jobs.

10. Control the controllables.

Getting laid off may be completely out of your control.

Instead, focus on the things you can control. This way, you can build a life that gives you options, reduces your stress and gives you as much control over your financial situation.

Examples to focus on:

• Improving your skills to earn more income.

• Having an emergency fund before you need one.

• Saving and investing proactively and as early as possible.

• Understanding your full financial picture and where you stand at all times.

The good thing is that the above items can be done with proactive financial planning. Financial Planning can help you focus on these main money areas:

• Identifying your goals and values

• Taking control over your cash flow (income and expenses)

• Manage your risks such as an emergency fund and insurances

• Tax planning and reducing your lifetime tax liability

• Investments to support your various goals

• Retirement income planning for when you stop working

• Your legacy and end-of-life wishes

I always say that while not everyone needs a Financial Advisor by their side to guide them through the ongoing financial planning process, everyone needs to do formal financial planning.

But if you don’t have the time or desire due to your busy schedule, you may benefit from a relationship with a Financial Advisor.

And notice I said “formal” financial planning. Everyone does financial planning. Not doing any formal financial planning is still financial planning. Just like “not making a decision is still a decision.” So don’t forget to plan; otherwise, you are planning to fail.

If you're interested in formal financial planning and aren't sure where to start, feel free to reach out. The first two meetings are complimentary:

• Meeting 1: A 15 to 30 minute conversation to get to know each other and see if we’re a good fit.

• Meeting 2: A deeper dive into your numbers and goals. I’ll gather your financial info, input it into planning software, analyze it and help assess whether you're headed in the right direction.

You can schedule a meeting here: First Impression meeting