In today’s uncertain economy no one’s job is safe. Businesses are closing their doors, salaries are being cut and 401k matches are a thing of the past. But as credit remains tight and consumer spending slows there may be even more job losses still to come. If you think your job may be in jeopardy then you need to start taking action today so you’re prepared when unemployment strikes. Here are seven ways you can prepare for job loss.
1. Increase your cash reserve.
The old adage says you need three to six months of living expenses set aside as your cash reserve. (Three months if there are two income earners in your family and six months if there’s one.) But in today’s economy, that’s not enough. With the job market as slow as it is you should add at least two extra months to your cash reserve, which means you should have five to eight months of living expenses saved up at a minimum.
2. If you have two income earners in your family, practice living off only one income.
Practice living only off the income provided by the job that is most safe. Consider the second income “a bonus” while it lasts and use it to bolster your cash reserve. This will require changes in your lifestyle and it’s best to start making these changes now so you can see what works for your family and what doesn’t. This will go a long way toward preparing you for the reality of unemployment.
3. Start updating your resume and cover letter.
Don’t wait until unemployment hits to start thinking about your resume; you need to start updating it today. You should start your job search the day after you receive your pink slip. It may seem like a rush, but given the current state of our economy it could take weeks or even months to find a new job. This means you need to have your resume and cover letter ready so you can start your search immediately.
4. Find out how much personal health insurance will cost.
When you lose your job you may be able to continue your employer-provided health insurance for a few months under the COBRA rules, but there is usually an extra cost involved. Start checking today to see how much personal health insurance will cost and remember you should never go without health insurance. You may be surprised to learn how expensive it can be, so start saving today and be prepared to dip into your cash reserve if you need to.
5. If you have credit card debt, contact the companies today.
Call the credit card companies you owe money to and tell them you’re facing possible unemployment. Tell them you’d like to work out a payment plan and find out what the next steps are. Most credit card companies will be willing to work with you if you take the first step, so you must be proactive.
6. Open an individual retirement account (IRA) today.
If you lose your job you’ll lose the ability to contribute to your 401k, 403b, or any other employer-sponsored plan you have. But you don’t want to lose your ability to save for retirement altogether. When your cash flow starts to improve again, which it will, you want to have an IRA already set up so you can start saving immediately.
7. Create a living expense worksheet.
Write down everything you spend money on starting today. Continue this exercise until you can identify your spending trends. Then look for areas you can improve and ways you can cut back. Having a clear understanding of how much you spend will help you determine how much you’ll need to save if you lose your job.