Depending on who you ask, we are either in a recession, heading into a recession, or will narrowly escape a recession. Nonetheless, inflation has weakened buying power with the consumer price index increasing by 6.4% for 2022. Even worse, major companies like Meta, Amazon, Salesforce, and Ford have recently announced layoffs.
Back in 2008, I was working in marketing at General Motors when we went through multiple rounds of layoffs and a structured bankruptcy. Fortunately, I managed to survive the layoffs and in fact, I thrived during this time. However, the anxiety that time period created always stuck with me. This experience led me on a personal finance journey that resulted in a passion for multifamily investing and helping others diversify their portfolio. Knowing what I know now, here is the advice I would give to anyone facing layoffs or an uncertain financial future.
Creating an emergency fund is one of the first and most important steps to protecting your finances during a layoff. By setting aside money in savings for unexpected expenses, you can avoid having to take out loans or credit cards for necessities if and when you do become unemployed. Aiming to save at least three months' worth of living expenses is ideal, but it's also important to recognize your discretionary spending so you can adjust your living expenses to the vital necessities if needed.
The easiest way to save money is to set it and forget it. When I got serious about my finances, the first thing I did was set up a savings account and automate transfers to take money out of my checking account to place into my savings before I even had a chance to see it in the checking account. If you take a similar approach, you will find it easier to create your own emergency fund.
Another way to protect your finances is to develop multiple streams of income. By diversifying your sources of income, you can generate steady cash flow that will help sustain you and your family during difficult times. Consider taking on side jobs or starting an online business that can bring in additional money. In the current gig economy, you may be able to offer services on Upwork, Fiverr, or similar sites. Even for senior professionals, you could consider becoming a fractional CFO, CMO, or similar role.
However, maybe you are already working long hours and hate the idea of taking on another job. Alternatively, you can look for residual income for items you only need to create once. You can create a course and sell it on platforms like Kajabi or Udemy. Consider writing an e-book or selling a digital product that buyers can download. Being creative and resourceful can help you make the most of the uncertain situation and keep your financial future secure.
Another option is to invest in income-producing assets. Investing in stocks, bonds, mutual funds, and real estate can provide a steady stream of income that can help cover basic living expenses during a period of unemployment or reduced income. However, all assets are not the same. Income-producing assets provide you with income in the short term and the potential to go up in value in the long term.
Real estate assets, like multifamily apartments, provide this balance of cash flow and appreciation. The key is to find assets that produce income such as rental properties; land, flips, and development deals do not produce income even though they can be profitable investments. If you need to liquidate or sell, these assets are easier to sell than raw land and can provide you with the infusion of capital you need. It's always best to plan ahead and know what resources are available should the worst occur.
Most corporate professionals invest in a 401(k) or similar retirement account. This is a good first step, but there is a steep penalty if you touch those funds before retirement age. Granted, there are hardship exemptions, but there are alternative vehicles that provide you with flexibility today and through retirement. If you want to protect your finances, you need to have an outlook that focuses on accumulating assets that appreciate in value and can be leveraged and/or sold if needed.
A long-term outlook does not mean only focusing on retirement. The goal is not to retire at 65, it’s to live life on your own terms. This means identifying potential gaps that could derail your life plans and finding ways to guardrail those plans. These issues could be from job loss, health issues, family challenges, or other unforeseen situations. While you cannot always prepare for a specific situation, you can find ways to provide flexibility to handle any situation.
By diversifying across various asset classes and generating different streams of income, you can effectively protect your financial future. Additionally, by taking a hands-off approach to investments — leaving them alone rather than constantly trading — you can minimize risk and maximize your chances of success.
Protecting yourself from potential job loss is an important step to becoming financially secure. By following the tips above, you can protect yourself from surprises or developments that come your way. With a little bit of planning and effort, you can build wealth and security for yourself and future generations.
About the Author:
John Casmon has helped families invest passively in over $100 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Multifamily Insights. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com