Matt asks the following question about preparing for a layoff:
My girlfriend is working the Dave Ramsey baby steps. She has the $1,000 emergency fund and is now working on knocking down the credit cards. Her job has laid off about 25% of the workforce and things are not looking much better for them and she might be next if they do another round of lay offs due to the time she has been there. She is going to get $1,200 or so back on taxes. Would it be better to pay down debt with that money or to save it?
Since your girlfriend is a Dave Ramsey fan I’ll pass along his advice for this scenario, which I happen to agree with wholeheartedly. What she is facing is what Ramsey refers to as an impending financial storm–“there are storm clouds on the horizon.” When we are fortunate enough to see these storms coming it is time to pile up money.
Many employers are reducing jobs in this economic downturn, and I personally think it is a good time to beef up emergency your fund to help survive a layoff. This is particularly true if your employer is announcing job cuts.
I went through something similar about six years ago at my last employer. For the first time in their corporate history they announced a significant workforce reduction. I watched several friends and coworkers come in planning to work on a Thursday morning only to be led out by security carrying all their personal possessions from the office in a cardboard box. It was a sobering experience, and I knew I could very well be next.
When the layoffs were announced I immediately slowed my debt snowball plan, only paying minimums and storing everything else in an emergency fund. When the clouds cleared (I found a new job in a new town) I used some of the money in savings to restart my debt snowball plan. If I had lost my job in the interim we could have lived off of my emergency fund for a few months while continuing to keep debts current.
I hope things improve at your girlfriend’s employer, and she is able to keep her job. But this is one of those situations where she should prepare for the worst, and hope for the best.