Preparing for a layoff isn’t anything anyone wants to do, but with unemployment just under 10 percent, the Federal Reserve taking steps to devalue our currency by up to 20 percent, and greater numbers of businesses outsourcing jobs to cheaper foreign alternatives, making preparations for a layoff is important for even the most secure jobholder. Even with the proliferation of severance lawyers and unemployment attorneys, layoffs have been numerous over the past few years.
If you get the sense that layoffs are coming to you or to your department, be prepared to brush up on your negotiation skills, particularly as they relate to negotiating a severance package. It’s always best to work your severance package out beforehand, but you have very little to lose by preparing for negotiations ahead of time. And don’t fall for the “layoff insurance” scams that are out there since most of them are just gimmicks.
10 steps to take to prepare for a layoff
1. Review your health insurance
Make sure you understand what your health insurance plan covers, and calculate how much it costs to continue your employer’s group insurance coverage through the COBRA. Be aware that under this coverage, you pay both the employer and employee shares of the premiums but at least you can continue the same coverage.
2. Beef up your emergency fund
It is CRITICAL that you set aside enough money in an emergency fund to cover your basic living expenses for three to six months … possibly as many as eight to twelve. These are your basic living expenses only – housing, food, basic insurance, transportation. Consider stashing this money in an online savings account or a money market account.
3. Slashing your spending NOW
Even if you’re only mildly concerned about a potential layoff, avoid spending on items and services you don’t truly need. Doing so will make it even easier to build up that emergency fund once and for all. Monitor your expenses for a few weeks or a month so you can see where you can realistically cut back. Then cut, cut, cut!
4. Talk about money with your spouse
A layoff — or the possibility of one — can put the spotlight on such differences you have with your spouse concerning your financial goals. Talk honestly and set goals together about how to cope as a team in the coming weeks and months. You’re going to need each other and you need to be pulling your financial wagon in the same direction.
5. Network like crazy
If you sense a layoff is around the bend, think of all your friends, colleagues and contacts you’ve ever made in your industry, and start reaching out to them now. Ask whether they’re aware of any openings, future openings, opportunities, or potentially useful contacts in your field. If you’ll always make a point of getting to know as many people as you can in your line of work, you’ll stand a better chance of finding work quickly if you are laid off.
6. Get disability insurance before you lose your job.
Personal disability insurance is important and it’s important to secure coverage based on your current level of income. By applying for disability coverage while your income is at its highest, you can supplement the group disability insurance you may have through your job. If you buy additional coverage on your own, you can take it with you when you change jobs, and it may be tax-free (check with your tax advisor). Comprehensive disability coverage can be very costly, but you can find accident only disability policies for as little as $25 – $35 a month.
7. Get higher education while it’s free … or at least cheap
If you work for an employer that helps cover education costs at schools in your area, take advantage of it while you can. Tap into that resource to improve your skills and polish your resume. If you work for a large company that offers a “Corporate U,” remember that hundreds of corporate university classes have been accredited, meaning you could get college credit for them if you decide to finish your degree while you’re laid off.
8. Get rid of any high-interest debt
Before a layoff ever strikes, make sure you’re not letting debt hang around for months on a high-interest credit card. Transfer that debt to cards with lower interest rates, or consider paying it off with proceeds from a Lending Club low interest loan.
9. Get a line of credit while you’re still employed
If you own a home and you can see that a job loss might be coming, consider opening a home-equity line of credit just in case. Don’t use money at all; just know that it’s there in case a serious emergency occurs. You may find that it’s harder to arrange for a line of credit in the current economic environment, but it’s still worth trying. Just remember that failing to pay an equity line could mean you lose your home.
10. Use credit cards with extreme caution
If you have a real concern that a layoff might be on the horizon, be extra vigilant with credit. A credit card can keep you in denial about your true financial situation because the money is so easy to use. Accumulating debt will only add to your stress — and you don’t need any more stress, whether you ultimately lose your job or not.