Layoffs are everywhere these days. My employer axed 20 more of my coworkers on Friday, and every week I hear about friends losing jobs at various companies nationwide. Layoffs suck, but given the recession we’re in, they aren’t a surprise. And although you can take steps to reduce the chance you will be laid off, you can never guarantee your job security. With that in mind, it’s a good idea to always be prepared for the possibility of being laid off.
Preparing for a layoff is a bit like writing your own will—it’s easier to put it off the task and hope you don’t need it. But find yourself jobless in the near future; you’ll be a lot happier if you’ve done a few simple things. Here are some basic steps to prepare for a potential layoff:
Prepare for a layoff step #1: Save some cash, no matter how little.
Losing your job is the single most important reason you need an emergency fund. Haven’t started saving? It’s not too late. Save what you can.
Last week I even heard the king of debt-reduction Dave Ramsay tell a radio show caller to stop paying extra towards credit card bills and start stockpiling cash. The reason? The caller’s union was preparing to go on strike (of all times) and he could easily be out of a job in a month. You will need cash to get you through weeks or months without your salary while you find work. You don’t want to go into more debt by using credit cards to survive while you’re unemployed, and even if you have to, credit cards can’t pay crucial expenses like your rent or mortgage.
If you think your job is at risk, start diverting money to savings now. Temporarily stop paying extra on any debts, and cut back on spending where you can. Don’t stop contributing to retirement accounts, however. The stock market is on sale, and those contributions are key to recouping losses your 401(k) or IRA sustained last year.
Prepare for a layoff step #2: Know your rights as a terminated employee.
In most cases, these rights include state unemployment benefits, the ability to purchase COBRA health insurance benefits, pay for unused vacation time, and prompt payment of your final paycheck. Lauren at LifeStyler has written an excellent summary of your employee rights if you are laid off.
Prepare for a layoff step #3: Don’t rely on unemployment benefits.
If you are an employee and are let go involuntarily, you may qualify for state unemployment benefits. But those benefits will only match a part of what you earned, will only last for a set number of weeks, and are taxable! That’s right, in most states taxes are not withheld from unemployment checks. If you do go on unemployment and can’t afford to set aside roughly 35% of each check for taxes, figure out how much you’ll owe after receiving all of your benefits. When you find work again, divide that amount by the number of pay periods remaining in the year, and indicate on your IRS form W-4 that you want that additional amount withheld from you paychecks. Learn more about federally-required unemployment benefits here.
Prepare for a layoff step #4: Have your resume and references ready.
Layoffs can be painfully sudden. Some employees are lucky enough to see the writing on the walls, others are not. When a layoff hits, the employees with a fresh resume and a job search strategy ready to go will have a leg up. Remember, you’ll be reentering the job market and going up against people who have been out of work for months already. Take some time to prep your resume and know who you can call on for rock-solid references. Network with past coworkers to see if anybody is hiring; the worst that can happen is you’ll land an exciting new job opportunity before you need it!
Prepare for a layoff step #5: Relax.
In many cases, there is nothing you can do to avoid being laid off. Also, it’s not personal; it’s business. I know that first hand because I have seen employees who bust their butts get canned. Do what you can to prepare—including saving money and developing a job search strategy—but try not to lose sleep over the possibility of a layoff. Do your job well, spend time with family and friends, and take care of yourself. The fear of losing your job—or not finding a new one—is not worth your health.