You may have heard about tech sector layoffs in the news and wondered what you would do if you ever had to face retrenchment. While you can’t always foresee a retrenchment, one thing you can do is stay financially prepared for these unforeseen events so that you can focus your time and energy on bouncing back and finding new job opportunities. Here are 3 ways you can prepare yourself.
1. Assemble your emergency fund
First things first: set aside emergency savings to cover at least six months of expenses for unexpected events such as accidents or job loss. This is crucial for any working adult — even more so if you have dependents.
One way to build up an emergency fund is to automate transferring of a portion of your monthly salary into a separate account. A good rule of thumb is 10% to 20% of your salary. You will want to be able to withdraw your emergency funds easily when the need arises, so consider leaving them in a high-interest savings account.
If you want to build your emergency fund in a shorter period, or if you have difficulty setting aside 10% to 20% each month, track and review your expenses to see which could be cut. For instance, perhaps you could make do with 1 streaming service subscription instead of 3. Or you could work out at home instead of paying for a gym membership. By cutting out these non-essential expenses, you should have extra cash to put towards your emergency fund.
2. Cover your bases for current debts
While it’s important to stash extra money into your emergency fund, it’s also necessary to account for any debt you may have.
Start with the ones that incur the highest interest. If you have high-interest debts like credit card bills, prioritise paying them off ASAP, as these will be much harder to handle without a steady income. If you have issues paying in full, create a plan to make payments in parts within a certain time frame.
For your housing loan repayments when you’re in between jobs, if you have been paying with a combination of cash and CPF, you can choose to service your monthly mortgage using just your CPF Ordinary Account (OA) savings instead. This is why it’s recommended to retain up to $20,000 in your OA when buying a home!
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3. Draft up an action plan in the event you get laid off
Lastly, write out the steps to take if you do get retrenched. Being retrenched can make you feel discouraged and stressed. Having a plan that you can easily execute can relieve some of the mental load.
For example, one of the steps can be to keep your resume and/or portfolio updated so that you can start applying for new jobs quickly. Another step can be to reach out to trusted friends or ex-colleagues for referrals as they may have potential opportunities to recommend.
While you’re hunting for a new job, you can also consider picking up a temporary or part-time gig to tide you over, such as doing freelance work or food delivery.
Besides finding new sources of income, it also helps to cut back on spending, for instance by reducing trips to the movies or dinners out with friends.
If you have served your company for at least 2 years, you’ll be eligible for retrenchment benefits. The amount depends on your employment contract, but the prevailing norm is to pay a retrenchment benefit of between 2 weeks to 1 month’s salary per year of service, depending on the company’s financial position and the industry. Those with less than 2 years of service could be granted an ex-gratia payment out of goodwill.
Read more about retrenchment benefits on the Ministry of Manpower’s website.
Dealing with retrenchment can feel overwhelming. Amidst managing your finances during this tough period, remember to take time to care for yourself — read a novel, go for a jog or even catch a TV show you never had time for. Maintain an open mind and be receptive to new opportunities and possibilities that may arise. You’ve got this!
This article is contributed by CPF Board.