In case of layoff: A financial fire drill

Cleaning financial house

Suppose you're confident that you won't lose your job. How nice for you. Now get real. In this economy, relatively few positions are ironclad. Let your financial fire drill begin with the following chores:

• Pay down consumer debt. Better still, pay it off and cut back on nonessential spending. "You should not, in good times or bad, have credit card debt," Herigstad says.

• Have student loans? Investigate forbearance and other possibilities before you need them.

• Talk to your insurance agent. Find out how much you'd save by raising deductibles. Do not cancel insurance or let it lapse, even if you plan to garage your car; it can be difficult and/or more expensive to get new coverage.

• Contact your utility companies. There may be reduced rates for people in financial straits.

• Work on your résumé. Be ready to market yourself.

• Belong to a health club? See if they'd let you cancel temporarily. Some clubs will work with you during a downturn rather than have you drop the membership altogether.

• Make lifestyle changes. Read library books about frugality and cruise the Internet sites for tips on economizing. (Allow me to suggest the MSN Money message boards.)

• What's it worth? Make a list of what you could sell if push came to shove -- everything from electronics to that fancy mountain bike.

• The home as collateral. Although the home equity line of credit is not as easy to get as it once was, it's still a possibility, Herigstad says. If you get one, don't you dare use it -- the HELOC is an absolute last resort.

When layoffs are inevitable

For those working in industries hard-hit by the economic downturn, a financial fire drill is even more important. Start working your way through this list:

• Help for the jobless. Go to GovBenefits.gov to learn about unemployment pay and about other benefits you might be eligible to receive.

• Change your withholding. If you're certain you're getting laid off, make those last few paychecks a little heftier by adding more withholding allowances. "And tuck that money away when you get it," emphasizes Herigstad.

• Beef up your emergency fund. Kevin C. and his wife have stashed six months' worth of living expenses. "I'd like to have at least a year," says Kevin, a program coordinator for a Washington state community college. An impending refinance will save them at least $200 a month; it's going straight to the emergency fund, he says.

• Consider a roommate. Maybe a co-worker, maybe a relative, maybe a student.

• Investigate health insurance. Being added to a spouse's plan might be cheaper than COBRA (though the stimulus bill has a provision that covers 65% of the cost, which might change the picture).

• Help with tuition. Kids in private school or college? Talk to the financial aid office about what a change in circumstances would mean.

• Consider worker retraining. A community college in my region has been advertising heavily to the unemployed: "Free tuition! Free books!" Some of the things they teach, such as phlebotomy and heating and air conditioning, might even lead to jobs. Drop in and chat with an admissions officer, but be wary of too many student loans. (Not everything is necessarily free.)

• Have a post-benefits plan. Your unemployment may end before you find a job in your field, so be prepared to tackle a new line of work. Kevin C. knows a pharmacist who's working at a hot dog stand. Herigstad tells of a former executive at a major outdoor-gear company now checking receipts at Costco. "She's doing it cheerfully. She's doing what needs to be done. And she will find a job in her chosen field someday," Herigstad says. "People need to remember that they will find a solution. There is always a solution. We have been through recessions before."

The financial fire drill is not paranoid. It's prudent. Suppose you cut $300 a month from your budget. Now suppose you were unemployed for six months. That $1,800 would come in awfully handy along about month five of joblessness.

Best-case scenario: You'll never need to do any of these things.

And if the worst happens? It will be mitigated by your preparations. Not necessarily easier, just simpler.

Save money today

Another way to brown-bag it: Tired of bringing your lunch to work every day? A Smart Spending message board reader posting as "toucan77" came up with a surprisingly simple tactic to relieve lunchtime doldrums. Read the tip.

Savings made simple: You know you should be building an emergency fund, but you never seem to have the extra funds to do so. Another Smart Spending reader suggests a practically painless tactic. Learn more.

Don't throw it out! Some apples in my fridge were getting mushy, but I hated the idea of wasting half a dozen pieces of fruit. The solution was simple. Read about it, and learn how readers salvage past-its-prime produce, by clicking here.

Free movie Mondays: One of our favorite bloggers clued us into a promotion for free movie rentals. In fact, he's found a way to get several free movies at one time. Is he frugal or cheap? You be the judge.

Published March 4, 2009

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