If You Do One Thing After Being Laid Off, Do This for Your Finances

The U.S. economy is in a fairly strong place, and the unemployment rate is low. Despite that, unemployment activity has been unsettlingly high to start 2024. 

In January, U.S. companies cut more than 82,000 jobs, according to Challenger, Gray & Christmas. That's a 136% increase from December.

It's not inconceivable that your job might land on the chopping block at some point this year. And if that were to happen, it could deal a huge blow to your personal finances. 

What's more, perhaps you're one of the unlucky folks who's starting 2024 with a job search on your hands due to having been let go. If that's the case, it might take you some time to find a new job and recover financially. But once that happens, there's one important thing you should pledge to do.

Build yourself a solid emergency fund

The scary thing about losing a job is that it can happen without warning. Unfortunately, it can also happen even if you're an employee with a great reputation and work record.

The easiest way to get through a period of unemployment is to have emergency savings to tap. So once you're back on your feet following a layoff, make every effort to build a solid emergency fund so that the next time you find yourself out of a job, you'll have cash reserves to cover your bills. Without a fully loaded emergency fund, you might end up deep in credit card debt, which could create a world of financial upheaval.

How much money does your emergency fund need?

As a general rule, your emergency fund should contain enough money to cover a minimum of three months of essential expenses. The logic is that it might take you three months to send out resumes, go on interviews, receive an offer, and get onboarded. So it's important to have enough money in your savings account to tide yourself over for three months. 

But in some cases, it pays to save beyond three months' worth of bills. You may want to aim for a six-month emergency fund or higher if:

• You have dependents and are the sole earner in your household
• You have a very niche job, and replacing it will be difficult
• You work in a struggling industry where jobs are harder to come by in general
• You have expenses you can't easily unload, like a mortgage

That last point is worth digging into a bit, because most people have expenses they're liable for, whether it's an apartment lease or a car loan. However, if you're midway through a lease and you lose your job, your landlord may be willing to let you out of your lease if you explain your situation. From there, you could seek to move in with friends or your parents until you're gainfully employed.

When you own a home, things are a bit different. You're in a much more committed housing situation than if you're renting a home on a 12-month basis. In that case, padding your emergency fund makes sense.

All told, the more money you can set aside for emergencies, the better. But for now, commit to a three-month emergency fund as a starting point and see how well you can do from there. It's quite possibly the most important financial move you might make -- in the context of a layoff and in general.