According to a recent poll by The New York Times and CBS News, nearly three in 10 Americans believe that they or someone in their household might lose their job in the next 12 months. With the economy seeming to stall, businesses are cutting back their hiring practices and increasing their layoffs. Recent reports released by Challenger, Gray & Christmas, a firm that monitors layoff activity each month, show that U.S. companies gave pink slips to 103,522 people in May – the highest number of layoffs in two years.
If you’re concerned that you might be asked to leave the company, there are some things that you can do to prepare yourself financially in case of a layoff. Follow these tips below to weather the job loss until you can find a new job.
Build an emergency fund. Try and put as much cash as possible into a savings account. You can do this by stopping your 401(k) payments and having your employers give you the money instead of putting it directly into your retirement fund. If you have to withdraw money from this account later, it could cost you up to 10% in penalty charges as well as income tax payments. You can also lower the tax withholding on your paychecks. Your taxable gross income is likely to be lower even if you’re only out of a job for a few months. Also, start paying only the minimum payment on your credit cards, and put back the excess amount that you would normally pay into your savings account. When you start working again, go back to aggressively paying off your accounts.
Make a budget. Hopefully you have already established a budget, but if you haven’t then now’s the time to create one. Once you have a budget, make sure you cut back on all unnecessary items or charges. For example, if you have five cell phones, one for each member of your family, cut it down to two. Believe it or not, we did survive before cell phones were invented. Also, try carpooling to cut down on gas expenses, eat out less, and conserve on electricity all while putting the money you save into your emergency fund.
Apply for credit. Some experts suggest establishing lines of credit to help in case of an emergency and only in an emergency. Try getting a home equity line of credit. This isn’t a loan but it allows you to use your house as collateral in case you need some extra money. You can’t get this if you don’t have a job, so apply for it before you’re laid off. If you decide that lines of credit are your best option – be cautious. Only open enough accounts that aren’t going to put you in extreme debt in case you find yourself having to borrow more money than you thought. This can be a tricky backup plan, but if you play it safe and use it only as a lifeline, you should be able to bounce back without any lasting marks.
Layoffs can be scary but by preparing yourself ahead of time with these tips, you can make it through the tough times. Be conscious of your spending and be proactive in your savings – don’t wait until you’re laid off to start preparing.
Are you in fear of losing your job? What tips would you offer to help others prepare for a layoff?