Even as the job market shows signs of improvement, a job loss is still a very real possibility for many Americans as companies continue to downsize, “rightsize”, and otherwise shrink their workforces. When you lose your job loss, it may be several months before you can find a new position due to high unemployment rates. Even if you never get laid off, you will benefit from thinking about and preparing for the potential loss of your job. Getting ready for a job loss becomes especially important when you are seeing signs of trouble at your company or when you are warned that the end of your job is near.
General Preparation for a Job Loss
A job loss often occurs without any warning, so it is a good idea to take certain steps no matter how secure you feel your position is. First, have an emergency fund that covers between three and six months of your living expenses. This emergency fund should tide you over and allow you to continue making mortgage or rent payments and paying the cost of other necessary expenses until you are able to find a replacement position.
If you are the only breadwinner in your family or if your income covers the bulk of the family expenses, it is best to err on the side of caution and make sure your emergency fund will cover at least six months of income. When family responsibilities are shared, three month is normally sufficient as it is less likely that you and your spouse or significant other will both lose your jobs at the same time. If you and your spouse work for the same employer, you need a six-month reserve fund.
You should have in the back of your mind that you might some day need to get a job again. Constantly look for opportunities to improve your resume, such as taking continuing education courses or earning new certifications. Even if you do not lose your job, these things can only help you to advance in your current position.
Specific Preparation for a Job Loss
When you know that the end is near, preparations for the potential loss of your job become even more important and you will need to get serious about trying to ensure your financial viability after a lay-off.
The first thing you should do is check into the rules for unemployment and insurance. Find out if you are eligible based on your work history and determine how much in income you are likely to receive. This will give you a good idea of whether you can meet your basic expenses. COBRA allows you to extend your health care coverage up to 18 months after losing your job. You’ll have to pay the full premium, but you’ll still have health insurance and one less thing to worry about.
The next step is to start cutting expenses as drastically as you can, or at least looking for ways to do so. Cut out any unnecessary costs at this time such as the fancy cable television lineup or lunches and dinners out. Any money that you were spending on unnecessary expenses can be set aside while you are still working to get you through the lean times after the layoff. Once you have actually lost your job, slashing expenses will help your savings and unemployment money stretch farther. You can also call your insurance company and look into whether you can get a reduced insurance rate since you will no longer be driving to work once you have been laid off so your car will not be used as often.
Starting to network as soon as you know you are going to be laid off is a good idea as well, so you can hopefully shorten the length of time that you are unemployed. Polish up your resume and reach out to your network of contacts to let them know you will soon be looking, start browsing job boards and consider joining local professional organizations to make contact with people who can help you to get back on the road to being employed.